In an op-ed in today’s Wall Street Journal (subscription req.), Senators Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) threaten to demand a vote on their bill that would drastically raise tariffs on imports from China if the Chinese government does not move quickly to strengthen the value of its currency.
The senators claim that China’s currency, the yuan, is 15 to 40 percent undervalued against the dollar, giving Chinese imports an unfair advantage in the U.S. market and discouraging U.S. exports to China. China revalued its currency by 2.1 percent last summer and it has appreciated another 2 percent since then, but the senators say this is not enough. They blame China’s currency for our large bilateral trade deficit with China and the loss of U.S. manufacturing jobs. Their bill would impose a hefty 27.5 percent tariff if China does not sharply revalue its currency within six months after the bill’s passage.
In a Cato Trade Briefing Paper, “Who’s Manipulating Whom?” published in July, I documented the fact that imports from China have not reduced America’s overall manufacturing output. In fact, since China fixed its currency in 1994, real output at U.S. factories has actually increased by 50 percent. The sectors where China is most competitive—lower-end, labor-intensive goods such as shoes, clothing, and toys—have been in decline in the United States for decades. Goods we used to import from other countries anyway are now imported directly from China. U.S. factories employ fewer workers than they did a decade ago not primarily because of imports from China but because remaining workers are so much more productive.
Imposing the steep tariff called for in the senators’ bill would surely hurt workers and producers in China, but it would also victimize millions of American consumers. More than three-quarters of what we imported from China last year were goods Americans use every day in their homes and offices—not only all those shoes, clothing items, and toys, but also sporting goods, bicycles, TVs, radios, stereos, and personal and laptop computers. The Schumer-Graham bill would be a direct, regressive tax on millions of low- and middle-income American families. It would also jeopardize tens of billions of dollars of sales American companies now make in China, our major, growing export market.
Chances are slim that the Schumer-Graham bill will become law anytime soon, but the fact that such a reckless piece of legislation would be considered on the floor of the Senate should be as troubling to Americans as to the Chinese.