As Washington prepares to roll out the red carpet for President Hu Jintao's state visit, three Democratic senators have introduced legislation aimed at punishing China for what they call a repeated failure to correct the value of its currency, which they say creates a negative impact on U.S. trade.
Senators Chuck Schumer, D-N.Y., Debbie Stabenow, D-Mich., and Bob Casey, D-Pa., unveiled the Currency Exchange Rate Oversight Act of 2011 Monday. The legislation would tighten the reins on Treasury Department decisions to cite a country for unfair currency manipulation, give more power to stiffen penalties on an offending country's exports and allows for prohibitions on companies headquartered in offending countries receiving federal government contracts.
"China's currency manipulation is like a boot on the throat of our economic recovery," Schumer said in a statement. "We are sending a clear message to the Chinese government: if you refuse to play by the same rules as everyone else, we will force you to."
Analysts agree the Chinese Yuan is undervalued by as much as 20-25 percent. That means Americans are able to buy cheap Chinese imports but makes it expensive for the Chinese and others to buy American exports, choking off demand and hurting American manufacturers.
"China's currency manipulation has contributed to job loss and weakened economic growth in Pennsylvania and across the country," Casey said. "China has been allowed to develop an unfair advantage while going virtually unchecked."
But the Obama administration must walk a fine line since China holds around $1 trillion in federal debt. And many say the U.S. has much more to lose than China if a trade war develops.
Nicolas Consonery, an analyst with the Eurasia Group, a consulting firm that evaluates political processes in nations around the globe, also notes that because legislation can't be aimed only at China, a bill like this could affect countries the U.S. has good relationships with, like Japan.
Still, the three senators plan to welcome Chinese President Hu to American soil with the threat of new tariffs if his country won't inflate the value of the Yuan.