The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates.
Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing.
The issues of US currency legislation and the so-called “currency wars” – international tension over exchange rates had been in abeyance this year. However, that has reversed as safe-haven investment flows have strengthened the dollar, unemployment has remained high and the chances of a dip back into recession have increased sharply. Brazil recently suggested that World Trade Organisation law be changed to permit tariffs to be imposed against imports from countries with undervalued exchange rates, a measure similar to the unilateral actions in the proposed US bill.