Top Republican: China Currency Bill “Dangerous”

House speaker John Boehner is reluctant to condemn China for manipulating its currency.

The top Republican in the House of Representatives warned on Tuesday that it was “dangerous” for the United States to try to influence Chinese currency policy with legislation.

“While I’ve got concerns about how the Chinese have dealt with their currency, I’m not sure this is the way to fix it,” House speaker John Boehner told reporters.

On Monday, the United States Senate had voted to open debate on a bill that calls for tariffs on imports from countries which deliberately undervalue their currencies, prompting a fierce rebuke from Beijing.

As China’s economy is expected to overtake America’s as the world’s largest in terms of gross domestic product by 2016, lawmakers in the United States complain that their competitor is shielding its own market with trade policy and promoting exports with a cheap renminbi.

The Chinese depegged their currency from the dollar in 2005. The value of the yuan has since increased by some 30 percent against the dollar while the People’s Bank of China is allowing it to float in the foreign exchange market albeit within a narrow band.

But China won’t move further on currency as long as it has millions still living in poverty and millions more dependent on exports to the West.

Premier Wen Jiabao defended China’s monetary policy in Brussels last year. On the whole, China’s economic development “still lacks balance, coordination and sustainability,” he had said previously. A sudden increase in the yuan‘s value, he told the Europeans, could bring “disaster” to China. “Factories will shut down and society will be in turmoil.”

Treasury Secretary Timothy Geither has pointed out that the value of the Chinese currency alone does not shape the long-term investment decisions of American companies. Inflation is another crucial element.

Chinese inflation is much more rapid than the United States now. Chinese inflation is probably going to be more than twice, three times American inflation rates for a long time to come.

As a result, exchange rates, in real terms, are appreciating — “at roughly a pace of about 10 percent a year,” according to the secretary. “And that’s a very substantial material change,” he admitted.

For some American legislators, it’s not been enough. “For some inexplicable reason, the Republican leadership in the House is siding with the Chinese government,” said Democratic senator Charles Schumer of New York. “The Chinese only understand one thing — being tough,” he told his fellow senators despite calls for multilateral talks.

Chinese officials have accused Washington of “politicizing” the currency issue and retort that “quantitative easing” on the part of the Federal Reserve is actually a cloaked method of driving down the exchange rate of the dollar by injecting more money into the economy.