For years, U.S. manufacturers and policymakers have accused the Chinese government of artificially depressing the yuan's (you-ON) value by as much as 40 percent in order to make Chinese goods cheaper than those produced in the U.S.
Senate Finance Committee Chairman Charles Grassley of Iowa and Ranking Member Max Baucus of Montana said their bill would shore up weaknesses in the current system.
Sen. Charles Grassley, R - Iowa: "Under current law, if the United States finds that another country is manipulating its currency at the expense of the U.S. economy, we don't have a lot of options. Current law essentially says, 'Now what?" Our bill says, 'Do this.'" 10:10:40
The measure would require the Treasury Department to work with the International Monetary Fund and other countries to resolve currency imbalances. If foreign nations fail to comply they could lose U.S. government loan guarantees and face other economic sanctions. The proposal also expands the authority of the U.S. Trade Representative to handle specific trade enforcement issues.
While Grassley and Baucus claim other nations have manipulated their currencies in the past, it was clear that China is the focus of their reforms.
Sen. Max Baucus, D - Montana: "China is not doing what it should be on currency, on piracy, on imports of U.S. Beef... It's no surprise that Americans don't trust China on trade. But Americans wouldn't need to be so nervous if their government was doing what it should do." 10:12:40
Even if China brings its currency into balance with the dollar, the trade gap likely will remain high, due largely, to lower labor costs. A study commissioned by the U.S. Bureau of Labor in 2004 revealed that China's factory employees were paid about 3 percent of a U.S. worker's wages.