China Currency Bill

The China Currency Bill was potential law passed in September 2011 by the U.S. Senate that would have added tariffs to countries, most notably China, found to be undervaluing their currency. The China currency bill's intent was to make imports more expensive from these countries and even the trade deficit and decreasing the countries' unfair economic advantage. It was a controversial bill because China held enormous economic clout, as it was one of the U.S.'s top trading partners, and also holds a lot of U.S. debt – and still does today.

There was a fear that if the China Currency Bill was approved by the House and became law, that China would respond in kind and spark a trade war with the U.S. and cause another recession. The belief is that if countries, such as China, that artificially peg their currency to the U.S. dollar were to let their currency freely float on the foreign exchange market, their currency would appreciate to reflect their growing economy, making labor and the cost of goods more expensive to import. This would help stem the loss of jobs to countries where production is cheaper.

If passed, the China Currency Bill would have:

-- Forced the Obama administration (and subsequent administrations) to officially red-flag nations whose currencies were undervalued for long periods with the term "fundamentally misaligned currency." 

-- Made it harder for the Commerce Department to ignore calls to investigate accusations of undervalued currencies.

-- Forced the Obama administration to give Congress a list of nations with "misaligned" currencies.

If a nation was accused of having an undervalued currency, and it made no effort to rebalance the currency for three months or more, the bill stipulated that was the time when tariffs would be imposed. 

In addition, the bill would have:

-- Stopped the federal government from buying goods and services from that nation.

-- Prevented the U.S. trade promotion agency, the Overseas Private Investment Corp., from investing in that nation.

Most big business groups opposed the bill, but some union groups supported it.

The Obama administration took the stance that the best course of action for trade disputes was diplomacy, not knee-jerk penalties, pointing out China's implemented policies that allowed the yuan to appreciate slightly.

The China Currency Bill ultimately failed to win congressional approval, but in 2013, a bipartisan group of lawmakers embarked on a new attempt to pressure China to change its currency practices. However, this effort would also fall short.