In the previous “Currency Reform for Fair Trade Act”, the benefit to the recipient from an undervalued currency was defined in an intuitive way. According to this Act, a benefit exists in the case of an undervalued currency:
... if the exporter or producer receives or is entitled to receive more of the exporting country's currency in exchange for the United States dollars paid for the subject merchandise than if the exporting country's currency were not... undervalued.
This view reflected the classical “market benchmark”. In other words, a benefit exists when the recipient receives for example more yuans than he/she would receive in a counterfactual situation where the exchange rate is market determined.
The most recent currency bill attempts courageously to define this counterfactual. Unfortunately, the result is much less intuitive than the old definition, and is almost unintelligible:
the administering authority shall...measure such benefit by comparing the simple average of the real exchange rates derived from application of the macroeconomic-balance approach and the equilibrium-real-exchange-rate approach to the official daily exchange rate identified by the administering authority.
According to Rob Portman, this new definition (based on IMF principles) should protect the critical distinction between currency manipulation and legitimate monetary policy and ensure that countries should not be constrained in their macroeconomic policy.
It is rare to see such complex economics in a legal text. Would it have been possible to explain this counterfactual in a clearer way? More importantly, would the Department of Commerce be able to make the necessary calculations with the help of IMF data (supposing these date are available on a continuous basis and for all kinds of countries)?