Chris Padilla, Under Secretary of Commerce for International Trade, says that using AD/CVD duties to fight currency manipulation is not a good idea:
The Chinese currency has received particular legislative attention. I will leave it to my colleagues at the Treasury to discuss currency policy. Instead, I will address the challenges of requiring the Commerce Department to include an assessment of China’s currency value in antidumping (AD) or countervailing (CVD) duty margins. This is problematic for at least four different reasons.
First, keep in mind that the central purpose of inserting currency judgments into trade remedy cases is to drive up the price of imports from China. China is the single-largest supplier of inexpensive products purchased by American consumers. In this time of economic uncertainty, as Congress and the Administration work together to stimulate growth, it would be very unwise to pass legislation that could inflate consumer prices.
Second, there are serious questions about how the Commerce Department would administer a trade-remedy regime that turns on currency valuation. The staff of Commerce’s Import Administration works hard to measure prices and subsidies in a transparent, objective manner. But I could pick up the phone today and call five economists who would give me five different opinions about the value of the renminbi. Some say it is undervalued by 40 percent. Others say twenty-five. Last July, The Economist’s famous Big Mac index found a 58 percent undervaluation of the RMB based on input prices for a hamburger. But even that tongue-incheek method of valuing currencies depends heavily on the prices of local inputs which are not easily arbitraged across borders.
There are other such operational problems. The bills require that the Commerce Department consider only how currency affects the final price of products assembled in China, discounting that a low currency simultaneously increases the price China pays to import components that go into those final products. And currency valuation is to be considered on a one-way basis – only when there is alleged foreign undervaluation, with no offsetting effect when the dollar is relatively weak compared to overseas currencies. I can only imagine what would happen the first time a petitioner appeals to the U.S. Court of International Trade, arguing that the currency valuation used in a trade remedy case was wrong. Do we really want judges to arbitrate the fair market value of the dollar against foreign currencies?
Third, inserting relative currency values into trade remedy cases could open a Pandora’s Box of never-ending trade retaliation. The United States is already the third-largest victim of antidumping cases in the world. If we insert our own judgments on the value of foreign currencies into trade remedy cases, we would have to expect that similarly subjective countermeasures would be directed against our exports. It is not hard to imagine foreign trade bureaucrats using the relative value of the dollar as an easy excuse to erect new trade barriers. This would be particularly worrisome at a time when surging exports have been an important counterweight to the downturn in our domestic housing market. And there is a risk of multilateral retaliation as well. As Secretaries Gutierrez, Paulson, and Ambassador Schwab pointed out in a letter to Congress last summer, certain provisions of the pending China bills appear to raise serious concerns under international trade rules and could invite multilateral, WTO-sanctioned retaliation against U.S. goods and services.
Finally, there is no evidence that the proposed bills would reduce the bilateral trade deficit. Consider just two simple facts: According to the Treasury Department, the RMB has appreciated approximately 15% against the dollar since the peg was abandoned in July 2005. Yet over the same period, the Commerce Department reports that the bilateral trade deficit with China has increased by approximately 30%. The deficit is driven by many complex factors, including relative growth and interest rates, relative savings rates, and many others. Passing currency legislation won’t make the trade deficit go away.
