Before we attempt to answer that question, we’ll suggest that readers draw their own conclusions as to whether China has manipulated its currency. The Federal Reserve has tracked exchange rates going back to 1981. You can see the actual exchange rates from 1981-1989 here. And the exchange rates from 1990-1999 appear here. Finally, the exchange rates from 2000-2008 appear here. Clearly, Beijing has implemented some modifications to the exchange rate in recent years, but the historical analysis paints a much clearer picture.
Last year, the Senate considered a bill to require the Secretary of the Treasury to take action with respect to currency manipulation by the People’s Republic of China, and for other purposes. The bill ended up going nowhere, referred to committee. And just yesterday, a bi-partisan group of lawmakers both in the House and Senate introduced similar legislation with support from the Fair Currency Coalition, which includes steel, textile, and labor groups who blame China’s currency practices for losses in the U.S. manufacturing sector, according to Reuters.
The bill itself, not yet available at press time, may face a different future than the bill introduced in 2008. First, with a new president in office and a much larger Democratic majority, old bills may get a new life. On the other hand, Obama has not publicly stated that China has manipulated its currency. That may or may not matter.
With the recent move of Senator Arlen Specter to the Democrats and the senatorial win of Al Franken, also a Democrat, Congress may feel emboldened with its new filibuster-proof majority. This may help ensure that certain bills make it out of committee and reach a full Congressional vote. This voting power becomes extremely critical on issues such as card-check.
But that majority could also force President Obama to make tough decisions. In the case of currency manipulation, if the Senate and House bills both make it to a vote and pass, Obama will have to decide one way or the other if China indeed manipulates its currency. If he vetoes the bill, then only a super-majority can turn it into a law. If he signs it, well, that will create a whole lot of activity in the US manufacturing sector. Perhaps buying organizations may want to brush off their contingency plans? This one will be interesting to watch!
(Update 1/13/11: The House passed a version of the bill in September 2010 by a vote of 348-79; the Senate never voted on it. Chuck Schumer plans to bring another version to the Senate now that the 112th Congress have convened.)