Even though Chinese export prices are up 10% from a year ago, the sizable protectionist coalition in Congress is bent on imposing potential tariff penalties for alleged currency misalignment in a vote scheduled in the Senate today. This pre-election year proposal is part backlash against high unemployment and reflective of the near total confusion on Capitol Hill about the way the world’s monetary system works.
Current law already requires the U.S. Treasury to review countries that may be manipulating their currencies to prevent balance of payments adjustments. Senator Schumer’s bill in the Senate tweaks that to use “excessive and prolonged” accumulation of foreign exchange reserves as a ground for decreeing a currency “misaligned,” which sets up the pathway for anti-dumping penalties on that country.
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