The U.S. House of Representatives passed the Ryan-Murphy currency devaluation bill on Wednesday evening, which allows the government to impose tariffs and duties on exports from countries — China the likely target — that have held down their currency for artificial trade gains, but market reaction so far has been subdued.

The bipartisan bill, introduced by two Republicans, passed by a wide 348-79 margin.

“For so many years, we have watched the China-U.S. trade deficit grow and grow and grow,” Nancy Pelosi, current Speaker for the House, said in a speech ahead of the vote. “Today, we are finally doing something about it by recognizing that China’s manipulation of the currency represents a subsidy for Chinese exports coming to the United States and elsewhere.”

Ms. Pelosi noted the U.S.-China trade deficit has expanded from US$5-billion a year 20 years ago, to US$5-billion a week at present.

“If China wants a strong trading relationship with the United States, it must play by the rules,” she said.

However Todd Elmer, strategist with CitiFX, said while this legislation has the potential to significantly raise the stakes in a simmering trade war between the United States, China and others, there has been little reaction from commodity currencies.

“This is not what we would expect if the market were moving to price in escalating trade tensions given that commodity currencies would be more vulnerable to any resulting fears on an Asian economic slowdown,” he said in a note Thursday morning.

There are two possible reasons why the bill has not garnered the attention it otherwise would, he said.

First, senate leaders have suggested they will not consider the bill (bills require the approval of both houses prior to being sent to the President) until after the November election, and the issue may not be as hot by then so there is a real chance the bill will die.

Second, the bill itself may just be yet another indication of rising tension amid a flurry of comments on the matter in recent weeks. The G20 meeting in South Korea at the end of October may be the more prominent battleground for currency issues.

This focus on the G20 meeting may be misplaced, Mr. Elmer said.

“Progress in terms of official G20 rhetoric is typically only seen when incentives across countries are aligned,” he said. At the moment, this is not the case as most countries would prefer a weaker exchange rate, especially considering the weak U.S. dollar has not destabilized markets, he said.

Even so, Mr. Elmer warned the bill was the furthest any such currency manipulation bill has ever made it through the gauntlet of the U.S. legislature, and markets may be in for a rough awakening if the bill manages to become law.

“It could catch the market by surprise and would likely represent a blow to risk appetite on an immediate basis,” he said.

Eric Lam