The Senate will be voting today on a bill that would place import tariffs on countries such as China, deemed to be currency manipulators. Rather than punishing China, this bill will do more harm to American companies and consumers who rely on low priced products to run their businesses and budget their households. Additionally, this legislation will almost certainly spark an unnecessary trade war with one of our largest trading partners, hitting American companies who rely on exports.
As the Senate continues debate on S. 1619, the “Currency Exchange Rate Oversight Reform Act of 2011,” Americans for Tax Reform would again like to reiterate this organization’s opposition to unilateral action that would impose substantial tariffs against countries, such as China, that are deemed currency manipulators. Tariffs are taxes and any increase in the price of imports is immediately passed on to consumers.
There’s no doubt that China manipulates its currency, yet the route this legislation takes does more harm to the U.S. than China. While, protectionist measures are often enacted for the purpose of shielding domestic industries from "unfair trade practices," all indications are that they instead punish the multiple industries that rely on imports for their material inputs such as steel and raw materials. When input costs increase as a result of a rise in import tariffs, industries must cut costs elsewhere, the most likely being labor costs, meaning jobs.
As Congress looks for ways to encourage economic growth, enacting policies that avoid protectionism and boost exports will do much more in the immediate and long term to promote growth than any program, foreign and domestic, that allows government to take money out of the hands of the American people.