by Max Watkins:
Last week, the US Senate passed the Currency Exchange Rate Oversight Act, effectively condemning China’s alleged devaluation of its currency, the yuan, in violation of World Trade Organization rules. This makes Chinese exports and labor cheap, allegedly taking money and jobs away from the American economy. This bill would allow the President to impose tariffs at his discretion on countries that do allow their currency to rise and fall naturally.
The legislation was sponsored primarily by Senator Charles Schumer, a Democrat from New York who claims he is “leading the fight on China’s mercantilist exchange policies.” The Chinese Central Bank responded that such actions could lead to a trade war, hurting both sides.
On the surface, this is clearly an economic conflict between the world’s two largest economies. But such American sentiments about China are not new at all; for years many Americans have bemoaned the outsourcing of jobs to places like China or how cheap Chinese goods destroy the competitiveness of American made goods. The crucial question is why did such legislation only pass now? If this conflict shows us anything, it is domestic and political conflict within the United States. The US currently finds itself in a protracted economic slump, with politicians across the spectrum promising to fix the economy and produce jobs, with little results. Much of this inaction is due to the politicians themselves. There are many ideas being discussed to boost the American economy, but the politicians cannot reach a bipartisan agreement on anything substantive. Obama’s recently-announced job bill would require such bipartisan support, but there is little hope that this will actually happen. Naturally, it is always easiest and most expedient to blame others. And after years of blaming the other political party, in this case, the proverbial scapegoat becomes China.
By blaming China and its “unfair” trade policies, the burden of solving America’s economic woes is lifted from American politicians: it is China who is at task for our high unemployment and lackluster growth. It should be noted that although the Senate passed this legislation, the Speaker of the House John Boehner repeatedly stated that it would die in the House. This legislation, then, has nowhere to go and becomes a purely symbolic act with no real value; the notion of pragmatism has been ignored. The continued political gridlock and souring economy has reached a point where a foreign bogeyman is the reason for our economic woes.
Max Watkins ’14 is in Timothy Dwight College. He is a Globalist Notebook Beat Blogger. Contact him at maxwell.watkins@yale.edu.