6 The US Congress and the Chinese Renminbi

2196TheUSCongressandtheChineseRenminbiGARYCLYDEHUFBAUERandCLAIREBRUNELInSeptember2003SenatorsCharlesSchumer(D-NY)andLindseyGraham(R-SC)introducedthefirstcongressionalbill(S1586)targetingthevalueoftherenminbi,thenRMB8.28tothedollar.SchumerandGraham’sbluntremedywouldhaveauthorizeda27.5percentUSdutyonallmerchandiseimportsfromChina,ifnegotiationsdidnotsucceedinrevaluingtheren-minbi.The27.5percentfigurerepresentedSchumerandGraham’sarith-meticaverageoftwoprivateestimates(40and15percentundervaluation).SinceSeptember2003,senatorsandrepresentatives,bothRepublicansandDemocrats,havelargelycometoagreethatsomethingoughttobedoneaboutChina’scurrency.SomethreedozennewcongressionalbillswithvarioussponsorshavebeenfloatedtochallengeChinesecommercialpractices,andbillsintroducedsinceJanuary2005havefocusedincreas-inglyonthecurrencyvalue.1Figures6.1through6.3portraytherealef-fectiveexchangerate(REER),reserveaccumulationfigures,andbilateraltradestatisticsthatfuelcongressionaldiscontentwithChina.Thereislit-tledifferenceofopinioninCongressabouttheobjective:sharpapprecia-tionoftherenminbi.2Rather,congressionaldifferencescenteronwhichGaryClydeHufbauerresumedhispositionatthePetersonInstituteasReginaldJonesSeniorFellowin1998.PreviouslyhewastheMarcusWallenbergProfessorofInternationalFinancialDiplomacyatGeorgetownUniversityandservedintheUSTreasuryDepartmentfrom1974to1980.ClaireBrunelisaresearchassistantatthePetersonInstitute.1.Foralistingofbillsthroughthemid-2006,seeHufbauer,Wong,andSheth(2006).2.TheleadingcandidatesfortheDemocraticpresidentialnominationareallinaccord.06--Ch.6--219-2383/26/088:59AMPage219PetersonInstituteforInternationalEconomics|www.petersoninstitute.org220DEBATINGCHINA’SEXCHANGERATEPOLICYleversshouldbeappliedtomoveBeijing,whichlegislatorsshouldclaimpatrimonyforthelawthatemerges,andwhichcongressionalcommitteesshouldoverseesubsequentdevelopments.WhilenoneoftheproposedlegislationhasyetreachedthedeskofPres-identGeorgeW.Bush,theWhiteHousehascertainlytakennotice.Trea-surySecretariesJohnSnowandHenryPaulsonhavevaliantlytriedtoper-suadeBeijingthatexchangerateflexibilityisinChina’sowninterestaswellastheinterestoftheUnitedStatesandtheworldeconomy.Inre-sponse,ChineseauthoritiesintroducedaveryconstrainedfloatinJuly2005,andslightlywidenedthepermitteddailyfluctuationinMay2007.ThenetresultofChina’smovesisthattherenminbiisnow7.49tothedol-lar,anappreciationof9.4percentsinceSeptember2003.However,becausethedollarhasdeclinedagainstmostothercurrencies,intrade-weightedterms,therenminbihasappreciatedonly6.2percentsinceSeptember2003.Bywhatevermetricthechangeintherenminbiiscalculated,theex-tentofappreciationfallsfarshortofcongressionalaspirations.Thepredictableresultwasafreshcropofcongressionalproposalsin2007,3ofwhichthreeareprominent:theSenateFinanceCommitteebill(S1607)sponsoredbyMaxBaucus(D-MT),CharlesGrassley(R-IA),Gra-Figure6.1Realeffectiveexchangerateoftherenminbi,2000–2007indexNote:Highernumbermeansrenminbiappreciation.2007estimateisbasedondatafromthefirsthalfof2007.Source:JPMorgan.100959010511085200020012002200320042005200620073.ForacomprehensivelistofallChina-relatedlegislationintroducedinthefirstsessionofthe110thCongressasofDecember14,2007,seeUS-ChinaBusinessCouncil,“110thCon-gress,FirstSession,LegislationRelatedtoChina,”availableatwww.uschina.org(accessedDecember18,2007).06--Ch.6--219-2383/26/088:59AMPage220PetersonInstituteforInternationalEconomics|www.petersoninstitute.orgUSCONGRESSANDRENMINBI221ham,Schumer,andothers;theSenateBankingCommitteebill(S1677)sponsoredbyChristopherDodd(D-CT)andRichardShelby(R-AL);andaHouseofRepresentativesbill(HR2942)sponsoredbyTimothyRyan(D-OH)andDuncanHunter(R-CA).Ifjurisdictionaldisputescanbesettled—abigif—thentheHouseandSenatemayapprovesomeamalgamofthesebillsbeforethe110thCon-gressadjournsitsfirstsessioninDecember2007.TheTreasuryreportoncurrency,whichbylawshouldhavebeenpresentedtoCongressonOcto-ber15,2007,wasdelayed,possiblyuntilaftertheDecember2007US-ChinaStrategicEconomicDialogue(SED).ThenewInternationalMone-taryFund(IMF)managingdirector,DominiqueStrauss-Kahn,whotookofficeonNovember1,2007,willinevitablybedrawnintothecurrencyde-bate.CongressmaywelltakeadvantageoftheshiftinleadershipattheFundandtheDecemberSEDmeetingstoassertitsownviews.TheHouseislikelytomovefirst,astheSenateislockedinajurisdictionalstrugglebetweenitsbankingandfinancecommittees.Congressionalsponsorswillattempttodraftveto-prooflegislationenactedbytwo-thirdsmajoritiesinboththeHouseandSenate.Table6.1summarizesthedetailsofthethreereferencedbills.Essen-tially,thebillshavefivemovingparts.First,whiletheydifferincoveringawiderornarrowerrangeofcurrencypractices,allthebillseliminate“intent”indeterminingwhetherornotacurrencyismanipulatedormis-Figure6.2China’sforeignexchangereserves,2000–2007billionsofdollarsNote:2007estimateisbasedondatafromthefirsthalfof2007.Source:People’sBankofChina,onlinestatistics.1,2001,0008006004002001,4001,60002000200120022003200420052006200706--Ch.6--219-2383/26/088:59AMPage221PetersonInstituteforInternationalEconomics|www