Currency Exchange Rate Oversight Reform Act of 2011

Currency Exchange Rate Oversight Reform Act of 2011

Recently, the US Senate voted to advance a Bill pressuring China to prevent undervaluing its currency. The Senate voted in favour of the proposed Currency Exchange Rate Oversight Reform Act of 2011. This bill is basically an international trade bill in that would establish US tariffs on imports from countries with undervalued currencies. The Treasury Department will identify countries whose currencies are undervalued (Such as China), and then instruct the Commerce Department to impose duties on imports from those countries. China says that this legislation may spark a trade war.

Implications:

  • The Bill intended to give officials extra tools to use if countries are unable to take measures to eradicate currency misalignment
  • Its worth note that in 2010, the United States had a $270 trillion trade deficit with China in part to what most U.S. economists warn as an undervaluation of the Chinese currency, Yuan, which in turn gives its exporters a significant advantage in the global economy.
  • China criticized the move by the US Congress to pass a law intended to punish Beijing for suspected currency manipulation.
  • The law allows the imposition of penalizing duties on Chinese imports to the US, if Beijing keeps its currency artificially cheap.
  • Chinese Govt departments issued statements against the US proposed legislation.
  • Chinese Foreign Ministry firmly opposed to the Bill

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