China Trade: Currency, Barriers AND Industrial Policy

Dave Johnson

Is China’s industrial policy a “bigger” concern than their currency manipulation? That depends on what you think the meaning of “is” is. But China’s currency manipulation and trade barriers are against trade rules, while having an industrial policy is just smart. A national industrial policy helps a country’s businesses to be more competitive in the world economy. America doesn’t have an industrial policy, which is not so smart, and means we aren’t so competitive.

In today’s Washington Post, China’s industrial policy is bigger concern than yuan, U.S. executives say

Congress and the Obama administration are paying too much attention to China’s currency and not enough to other market-distorting tactics by China’s government. That’s the message being carried by a delegation of senior U.S. executives, representing the American Chamber of Commerce in Beijing…

The American Chamber of Commerce in Beijing represents American companies that do business in China. To the degree that the views in this story reflect the companies that have shipped manufacturing and other jobs to China and then export back to the US, they want China to keep their manipulated currency advantage. The manipulated currency rate means that goods made in China cost less than goods made here. Some estimates say that China’s currency manipulation brings these goods a 40% advantage over goods from the U.S. The reason there has been a lot of noise about the currency manipulation is that there was an April 15 deadline to declare that China was manipulating its currency and do something about it. The administration skirted around this deadline, taking the issue to the G20, but the Congress is looking into requiring the administration to act.

Don’t be fooled by the framing of this story into thinking that American businesses want China to be able to continue manipulating its currency. This is about competing interests. There are American companies that want to make goods here, but are unable to do so because of China’s currency manipulation. Fine. So the advantage that China’s currency manipulation helps them in the short term, but it hurts American manufacturing, jobs and the balance of trade. It is causing a great big bubble that will pop one of these days with disastrous results for the world economy – including China.

Industrial Policy is not trade barriers

It is true that currency manipulation is just one piece of our trade problem with China. The story talks about China’s industrial policy, but gives examples of various trade barriers that China sets up to block non-Chinese companies from doing business in China. These barriers are against trade rules and also need to be addressed. For example,

This includes China’s attempts to use regulations to block Western firms from selling their products to Chinese government agencies, new Chinese standards in telecommunications and other areas that would stop the country’s firms from buying Western goods, and new rules that force Western companies to give up technological secrets in exchange for a piece of China’s market.

An example? China used to import close to 100 percent of its wind-power turbines. Now it makes close to 75 percent of those that are sold in China. Chinese firms haven’t developed wind-turbine technology; they’ve just required that foreign firms selling turbines in China share that technology, and now their firms manufacture the turbines at a lower cost.

Yes! Exactly. We need to confront China over its currency manipulation and its illegal trade barriers. And we need to develop a national economic/industrial policy of our own to help us compete in the world economy.