At least a few members of Congress called on the Obama administration to take some actions against China because of its currency devaluation on Tuesday, but there were few specifics on what actions should actually be taken.
As more market news came in Tuesday regarding China's currency devaluation, I do what I normally do in these situations. I walked over and asked DTN Senior Analyst Darin Newsom what the impact would mean.
On the surface, it would seem China's move would hurt U.S. grain and oilseed exports to China because it would make soybeans more expensive for China to buy. The immediate reaction seemed to agree as November soybeans fell 23 cents and December corn was down 13 1/2 cents. Darin, however, noted the one thing China is going to continue doing is buying commodities needed to feed its people. The country might cut back on oil or other imports, but Darin was confident China would stay in the business of buying feedstuffs. Luxury car imports, however, could take a beating in China.
The People's Bank of China lowered the value of the Yuan (or renminbi) by nearly 2% against the dollar. It was the largest devaluation since 1994.
The move seemed to send everything but gold lower Tuesday. Headlines were filled with strong verbs such as "rattles," "clobbers," "tumbles" and "shakes," along with the occasional "worry." Crude oil futures fell to a six-year low from $44.96 in early morning to $42.87 before ticking back to $43.32, a $1.64 decline.
The Dow Jones Index also fell 1.2% and Canada's stock exchange fell 1.4% as well.
The initial political response was relatively muted, likely because Congress is not is session. After all, currency manipulation was a major focus when Congress was debating trade promotion authority for President Barack Obama. Members of Congress from both parties wanted tough currency measures and want the Obama administration to take more action.
Sen. Charles Grassley, R-Iowa, issued a statement about China's move, arguing it hurt U.S. competitiveness. Grassley said the devaluation should be considered an indirect subsidy to Chinese exports. He said an option for the U.S. would be to implement countervailing duties equal to the lowering of the value of the currency.
“China has manipulated its currency for a long time. This is just the latest example, and it’s past the time to do something about it," Grassley said. "Administrations under both Democrat and Republican presidents have been too timid about taking action, and China has taken advantage in the meantime. The Obama Administration ought to consider everything at its disposal to address China’s currency manipulation. If executive branch solutions aren’t the answer, the Administration ought to explain why not and help Congress with legislation. For example, there are provisions in the Customs bill that’s being negotiated that would give the United States new tools to use against trading partners that manipulate currencies. Currency policy also is an outstanding issue in the Trans-Pacific Partnership negotiations, according to the Administration. The United States needs enforceable currency provisions in trade agreements, and we need to take action to address currency manipulation by the world’s second-largest economy.”
On a call Tuesday morning, Grassley was asked if the idea of countervailing duties would end up having an impact on U.S. commodity exports, particularly soybeans that rely so heavily on those exports. Grassley countered that when the U.S. was in recession from 2008-2010, he didn't hear concerns from China about the state of the U.S. economy. "I think we have to be concerned about our own economic well-being, but more importantly we have to make sure that China abides by the rules of international trade," he said.
Grassley wasn't the only U.S. politician to express concern. Rep. Sander Levin, D-Michigan, ranking member of the House Ways & Means Committee, also argued that the U.S. needs to review the facts regarding China's devaluation. While China is not a member of the 12-country Trans-Pacific Partnership negotiations, Levin nonetheless argued that the TPP should be used to highlight the need to cope with currency manipulation in that trade deal "and to include a provision to impose countervailing duties to address currency manipulation in the Customs legislation that is expected to be negotiated in a House-Senate conference in September.” http://dld.bz/…
Sen. Rob Portman, R-Ohio, also issued a statement, expressing concern that the currency devaluation puts workers in his state at a competitive disadvantage. Portman, who was the U.S. Trade Representative from 2005-06, also called on the White House to push back against China's currency moves.
“Ohio workers can compete and win on a level playing field," Portman stated. "Unfortunately, the administration's refusal to take on China's currency manipulation is enabling Chinese workers to have an unfair advantage over Ohio workers. I fought to include bipartisan language in the Trade Promotion Authority to address currency manipulation on behalf of Ohio workers, and the bill includes two principal negotiating objectives that explicitly call on the administration to address currency manipulation through our ongoing trade negotiations. Today's news that China has yet again lowered the value of its currency is another harsh reminder that we cannot afford to sit idly by as China refuses to play by the rules; any negotiations on the Trans-Pacific Partnership must prioritize combatting currency manipulation by our foreign competitors.” http://dld.bz/…
Republican presidential candidate Donald Trump declared the move would be devastating for the U.S. "They're just destroying us," Trump told CNN. http://dld.bz/…
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