The house is set to consider H.R.2378 later this week, a measure that would identify China as a currency manipulator, and impose countervailing duties as a result.
The World Trade Organization forbids currency manipulation by member countries, however it's believed that many members engage in the practice. The key is to what extent the devaluation of one country's currency has an affect on global trade and economic well-being of other member countries.
Leading economists believe that the Chinese yuan is undervalued by 40%, and has been held at this rate for almost a decade. Manufacturers in America and other member nations point to this illegal devaluation as a reason why they have a disadvantage on global markets against Chinese manufacturers.
By identifying China as a currency manipulator, Congress will have legal course to introduce countervailing duties (tariffs) on imports that are found to have been unfairly subsidized by the state (China).
There has been increasing pressure from small manufacturers and Unions in America on the government to take action against China's longstanding devaluation of currency.
In February 2010, the Obama adminstration vowed to take seriously charges of currency devaluation by China. On June 19, 2010, the People's Bank of China made a public statement that they would allow the yuan to appreciate against the dollar, which resulted in a surge in global stock markets. Unfortunately, the yuan only increased by a single percentage point, causing growing concerns in Europe and America.
So what would a countervailing duty look like?
The bad news is that we would likely not be purchasing $39 DVD players, $7 shovels, and $2 socks anymore. Prices for imports from China would increase.
The good news is that other countries, including America, would see a rebalancing of global trade (where it is now shifted heavily in China's favor). This means manufacturers would be less inclined to keep factories in China. It may mean operations move to India or elsewhere, but some of these factories may come back to the States. Obviously, this would result in job creation - a welcome sign with double-digit unemployment.
The bottom line is that while this would be a step in the right direction, and should be welcome news for American and European manufacturers and Unions alike, it is not a cure-all for the decimated manfuacturing base in America.
Every little bit helps, and for those without a job and in danger of losing their homes and retirements - this could be very good news.