A controversial new piece of legislation is gaining ground in the U.S. Senate and House of Representatives that aims to pressure China into raising the value of their currency. Despite bi-partisan support the bill's momentum may have faltered after it was met with objection from Republican Speaker of the House John Boehner on Tuesday morning.
Similar legislation to curtail China's currency undervaluation and competitive edge in the global market has floundered in the past. But given the U.S.'s 9% unemployment rate and heightened attention to China's competitive stance, this bill has more momentum behind it than the previous attempts.
Last year's bill received 99 Republican votes, a stark contrast to the new bill which has received more than 200 House co-sponsors this week. It is expected to quickly reach 218, the number needed to pass, reports CNBC.
This particular bill calls for U.S. tariffs on imports from countries with undervalued currencies, a deliberate nod toward China. Those in favor of the bill argue it will help level the playing field and bring jobs back to America. Critics of the legislation argue that the consequences, if not pure retaliation, from China could be highly detrimental to U.S. exports and jobs. "If enacted, would risk a trade war with China -- one of the fastest-growing markets for U.S. goods -- at a time when a sputtering global economy can least afford it."
On Tuesday morning Representative Boehner threw in his two cents: "While I've got concerns about how the Chinese have dealt with their currency, I'm not sure this is the way to fix it," he told reporters. According to Reuters, it's worth reminding "house speakers normally get their way on legislation."
China, which has an export-based economy and strong interest in keeping their currency as low and competitive as possible, has not been idle in the debate. "China's central bank and the ministries of commerce and foreign affairs accused Washington of "politicizing" currency issues and putting the global economy at risk of a trade war ... China says it is committed to gradual currency reform and notes that the yuan has risen 30 percent against the dollar since 2005." (via Reuters)
If passed, President Obama must decide whether to sign the bill into law. The Obama administration is already in discussion over what the best action is, what their potential consequences may be, and whether the bill violates any international obligations. There has been no news from the Obama administration indicating a stance on the bill.
Should the bill be placed into law, China's economy would very likely suffer from a decrease in exports as the United States shifts suppliers. So we were wondering, which companies have a significant exposure to China and the possible currency war?
To help you analyze, here is a list of U.S. companies with significant exposure to China. Use it as a starting-off point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
2. Yum! Brands
4. Wynn Resorts
5. Applied Materials
6. Analog Devices
8. Jabil Circuit
10. Novellus Systems
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen does not own any of the shares mentioned above. Data sourced from Finviz and TheStreet.
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