The Case against Proposed Chinese Tariffs

In the midst of “Fair” Trade Month, the House of Representations passed a misguided bill entitled Currency Reform for Fair Trade Act of 2010 by a vote of 348-79 last week. Supporters of the protectionist bill likely believe that China is manipulating its currency to artificially lower the price of Chinese goods imported in the United States. If approved by the Senate and President Obama, the law would allow the Obama administration to raise tariffs on Chinese imports. According to Heritage Foundation Fellow Derek Scissors, the value of Chinese currency has not significantly impacted the US economy:

 The extent of the yuan’s misalignment is unclear, and so designing real remedies is almost impossible. More importantly, undervaluation is not a major factor in the bilateral deficit and not a factor at all in the overall trade deficit. And there is very little evidence that the yuan’s undervaluation costs the U.S. a large number of jobs. China is often a poor economic partner, but retaliation aimed at the exchange rate will not fix anything.

The fears surrounding the Chinese Yuan are largely unfounded.