Senate Ramping up for Trade War with China?

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WASHINGTON -- The Senate is taking up a controversial measure against China, as some politicians claim the country has an unfair advantage against the United States in international trade.

However, China has warned that passing such a bill could lead to a trade war.

The Senate bill would punish China, as some critics charge, for keeping its currency artificially low or undervalued, making Chinese goods cheaper and American exports to China more expensive.

First Shots?

Backers of the bill say China's suppressing of its currency has cost almost 3 million American jobs in the last decade.

So many lawmakers are desperate to do something about it.

"Our jobs and economic picture, as we know, is bleak. The line of unemployed workers would stretch across America and back again," Sen. Scott Brown, R-Mass., said.

Sen. Bob Casey, D-Penn. said there was unanimity across party lines in his state about "the adverse impact that China currency policies have had on our jobs."

However, Derek Scissors, an economist at the Heritage Foundation, said the facts show no actual connection between China's low currency and America's high jobless rate.

"If you look at 20 years of data: here's China's currency, here's our unemployment, you can't find a link," he said.

Tariffs vs. Tariffs

Some Chinese officials, Republicans, and major U.S. businesses have warned lawmakers that they are playing with fire and that the U.S. could set off a trade war.

If America slaps punishing tariffs on China, its second-largest trading partner and the fastest growing importer of American goods, China is sure to slap back with tariffs on U.S. exports.

"They're going to want to show how tough they are. We're going to want to show how tough we are, and that's the conditions where you could get a trade war," Scissors explained.

Both sides would likely get seriously hurt, and already cash-strapped consumers would end up paying more for all sorts of products.

Affect on Global Economy

For many analysts, the prospect for economic friction between the U.S. and China raises the possibility that a global recession could turn into something even worse.

"You could get going back and forth, bigger and bigger, more and more damaging bills, and that would start the trade conflict," Scissors said.

The world saw this in the 1930s when American lawmakers kicked off a trade war that some analysts believe made the Depression even worse than it might have been.

This time around, Scissors pointed out it would be the world's first and second biggest economies fighting it out.

"What would happen in a U.S.-China trade war is it would scare financial markets. Everybody would panic," he explained.

"So everything that you see now with flights into gold, flights into U.S. treasury bonds, that would happen even more so," he predicted. "Smaller countries economies would just collapse because all the money would leave."

"It could cause a lot of global harm, and obviously this is a time where our economy and the global economy are both weak, the worst possible time for it," he added.

Scissors said what China really does that's harmful to other economies is it refuses to let other nations compete with Chinese state-owned industries like in steel and oil.

But working to change that thinking takes long, hard, patient negotiating.

"And in 2011, with high unemployment, an election year coming, no one in D.C. is feeling very patient," he said.

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Paul  Strand

Paul Strand

CBN News Washington Sr. Correspondent

As senior correspondent in CBN's Washington, D.C., bureau, Paul Strand has covered a variety of political and social issues, with an emphasis on defense, justice, and Congress.  Follow Paul on Twitter @PaulStrandCBN and "like" him at Facebook.com/PaulStrandCBN.