The proposal was outlined in detail on Monday in CFC’s weekly China Business Watch publication in reaction to last week’s Congressional moves to force China to increase the value of its currency. The bills’ sponsors theorize that increasing China’s exchange rate will make its exports more costly, and slow the movement of US manufacturing to the country. CFC has noted that this represents a serious misunderstanding and oversimplification of the economic consequences of such a new law.
A growing number of economists and commentators have stated that the legislation – if adopted- could spark a regional crisis and possibly a worldwide recession. They note such an economic meltdown followed Japan’s increase in its exchange rate in the late 90’s. To this point, the Boston Herald in an August 5 Editorial stated that the pending legislative measures “represent bad ideas that could hurt the U.S. economy.” It is the paper’s position that no revaluation of China’s currency can in reality be expected to significantly reduce China’s $200+ billion trade surplus with the U. S. The editorial also pointed out that such measures cannot be expected to lead to any meaningful increase in manufacturing production in the United States.
Under CFC’s proposal, Congressional members sponsoring any such legislation would be required to prepare and submit a detailed economic study drafted by the Congressional Research Service or another equivalent authority, outlining the likely projected results to the U.S. economy and taxpayers should the legislative proposal be enacted into law. This information would be available for review by the public.
It is CFC’s view that the submission of such Economic Impact Statements would assure that predictable economic consequences of legislation would be fully considered and debated by the Congress and the public. Also, the sponsors’ assessments and projections would become part of the record, providing a basis for political accountability should economic disruptions occur following passage of such measures.
William J. Hallenbeck, CFC president has observed, “ Economic consequences resulting from legislation can be most harmful. Given the serious fallout from Sarbanes-Oxley Legislation, that has arguably sent scores of underwritings to London and Hong Kong and limited the supply of new business reaching New York, voters should be able to look to Economic Impact Statements to determine how and why legislators failed to consider the likely results of their actions.”
Hallenbeck added, “Interestingly, New York’s Senator Charles Schumer, who is currently leading efforts to correct the negative effects of Sarbanes-Oxley on the New York securities industry, is also a main architect of the anti-China currency legislation. All legislators should recognize that it is far more important to fully consider the economic ramifications of their proposals before they vote on such critical legislation. Should the U.S. and other world economies be disrupted by new laws, voters should be able to determine those responsible for serious misjudgments in drafting and passing such legislation.”
The CFC legislative proposal and issues of China Business Watch are available at www.chinafc.net.
