China Currency Fight In Congress

Dave Johnson

The fight to get China to stop their currency manipulation is heating up. China keeps its currency very low, giving their goods a huge price advantage even before all their other trade manipulations come into play. This costs us jobs, factories, companies and entire industries. Now the Congress is taking steps to force them to stop. This has been going on a long time (see my own list of posts below). Our trade deficit worsens, more jobs are lost, more factories close, more imbalances threaten the world’s economy. It is time to act.

Background

China has decided that it is to their advantage to capture as many jobs, factories, companies and industries as possible. Like many countries they have national industrial/economic strategies for key target industries, and we do not. In pursuit of their strategies they use every trick we let them get away with — and we let them get away with a lot. They directly subsidize companies and industries, require companies from other countries to share intellectual property if they want to do business in China, subsidize electricity to factories, provide free land, “indigenous innovation” (Buy China) policies, and numerous other methods to gain advantage. Some of these are very smart self-interested policies (that we do not match) like the basic, normal government function of spending to provide top-notch infrastructure and education so their companies will flourish. Others are illegal trade practices that we do not challenge.

In effect, by not having our own national strategies and willingness to invest public funds, we send American companies out alone, to compete with national systems like China’s. Even our largest companies do not have the resources to take this on.

Over 2 Million Jobs

The Alliance for American Manufacturing says that ending China’s currency manipulation would create over 2 million jobs,

According to a new report released today by Robert E. Scott of the Economic Policy Institute, The Benefits of Revaluation, if China were to revalue the yuan to its equilibrium level – and other Asian countries were to follow suit – the benefits for the U.S. economy would be significant:
• U.S. GDP would increase by as much as $285.7 billion (1.9%);
• As many as 2.25 million American jobs would be created, enough to increase total U.S. employment by 1.6%; and
• The U.S. budget deficit would be lowered by up to $71.4 billion per year – or between $621 to $857 billion over ten years, if sustained.

Seriously Undervalued

China’s currency is estimated to be undervalued by 28% or more. Again from AAM,

A year ago, on June 18, 2010, Chinese leaders vowed to “allow the country’s currency to float more freely against the dollar and other foreign currencies.” Yet, U.S. trade deficit with China reached a record $273 billion in 2010, and according to research by the Peterson Institute for International Economics, the yuan is even more undervalued today against the dollar (28.5%) than it was a year ago (24.2%) and also more undervalued against a basket of currencies (the “effective” exchange rate) than it was a year ago (17.6% vs. 15.3%).

This Fight

The fight over doing something about China’s currency manipulation is heating up again, with a bill before Congress requiring tariffs unless China lets its currency rate be set by international currency exchange markets. Financial Times, US Senate to vote on China tariffs

The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates.

Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing.

… The main stumbling block to the measure is the House of Representatives, where senior Republicans have previously expressed scepticism about similar laws

Washington Post, Senate will take up Chinese currency measure before jobs bill,

Reid, who is sponsoring the package in the Senate, said the Senate will first take up debate next week on a bill to punish Chinese and other nations for currency ma­nipu­la­tion.

“I don’t think there’s anything more important for a jobs measure than China trade, and that’s what we’re going to work on next week,” he said.

… A senior Senate Democratic aide insisted the decision to complete the Chinese currency measure simply means the chamber is taking up a bill that will pass before holding what will likely be a symbolic vote on the jobs plan.

China Weighs In

China has weighed in, saying that protecting American jobs, companies and industries from the effects of their trade xxx is “protectionism.” The Economic Times (India) reports in Currency manipulation: China says it hopes US will ‘reconsider’ bill,

“We hope that the two countries can solve problems on the basis of mutual respect and equality and in keeping with WTO (World Trade Organisation) rules, rather than politicising economic trade issues and resorting to trade protectionism,” said ministry spokesman Hong Lei.

“We hope the US lawmakers safeguard the smooth development of China-US economic relations… and will reconsider their decision and refrain from pushing through the bill.”

Wall Street Opposes

Wall Street’s Club For Growth is letting Republican Senators know that Wall Street will oppose them if they use trade enforcement to try to bring American jobs and factories back. From Politico, Club for Growth warns GOP on China currency bill,

The influential Club for Growth is pressuring Republican presidential candidates and lawmakers to oppose bipartisan legislation cracking down on China’s currency policies.

… The Club for Growth has urged lawmakers to vote no on the bill, warning that the vote will be included in the group’s 2011 Congressional Scorecard, used to measure how fiscally conservative they are.

The Wall Street group says we should instead pass tax cuts, deregulate controls over how businesses behave toward the environment, workers, customers and their communities, and get rid of unions so the United States can be more like China, which they say would brings companies back.

Solyndra Example

There is a lot of press over the solar company Solyndra that went bankrupt. Many argue that our government has no business helping the green-energy industry to get a foothold in the United States. But China sees the jobs and wealth this industry will create in the future and takes this effort very seriously. Solyndra collapsed after China helped nurture Solyndra’s competition, giving them $30 billion of financing in a single year, free land and subsidized energy for factories, and many other advantages all on top of the currency rate advantage.

How Long Will We Play This Game?

This has been going on a while, and we keep putting it off. Meanwhile the world trade imbalance worsens, the trade deficit grows — draining money from our economy, the jobs keep moving, wage pressure here continues… As long as we put this off it get seriously worse.

I looked back at just some of what I have been writing on this subject. This has been going on too long:

March 11 2010 Why Won’t Obama Label China A Currency Manipulator?

March 15, 2010 Chinese Currency Showdown

March 17, 2010 Chinese Currency Manipulation: “Not A Small Issue”

March 24 2010 Why China’s Currency Matters To American Jobs

March 24 2010 Even Chinese CEOS Call For Chinese Currency Fix

March 25, 2010 Pressure Rises For China Currency Fix — Yesterday Chinese CEOs, Today Chinese Economists

March 26, 2010 Even Chinese Officials Understand — Their Currency Must Rise

March 30 2010 Chinese Currency Manipulation Is Just One Piece

April 5 2010 Big Weekend News On China Currency Problem

April 7 2010 Understanding Why The China Currency Issue Matters

April 21 2010 India and Brazil Join Call For Chinese Currency Adjustment

April 22 2010 China Currency Hearing

Apr 27 2010 IMF: ONLY Market Rate for Yuan Can Guarantee World Recovery

May 7 2010 China Trade: Currency, Barriers AND Industrial Policy

May 25 2010 China Dialogue – No Currency Agreement

June 21 2010 China – Industrial Policy, Not Just Currency

June 17 2010 China Says G20 Should Not Discuss Currency Imbalance

June 22 2010 Sorting Out China’s Currency Move

July 8 2010 After Saying China Manipulates Currency Treasury Dept. Declines To Say China Manipulates Currency

Aug 12 2010 China Currency Manipulation – Still A Big Issue

Aug 13 2010 China Springs The Trap

Sept 13 2010 China Currency Surprise: Lucy Pulled The Football

Sept 15, 2010 China Currency Battle Heating Up

Sept 20 2010 Obama Needs Congress’ Help On China Currency

Sept 22 2010 President To Talk Currency With Chinese Premier Wen Tomorrow

Sept 23 2010 China Currency Bill Moves — Why Some Corporate Interests Oppose

Sept 24 2010 House Committee Approves China Currency Bill

Sept 27 2010 Consensus Grows: Confront China On Trade

Sept 29 2010 Dems Right To Force Votes On Outsourcing And China Currency

Oct 4 2010 Is There A Currency War?

Oct 5 2010 More Consensus On Confronting China

Oct 6 2010 How “Free Trade” Led To Currency War

Oct 25 2010 G-20 On Currency — Maybe In November

Jan 19 2011 The China Currency Battle

Jan 21 2011 China Currency Manipulation Equals China Inflation

What To Do

Call your member of Congress and your Senators and let them know you want them to support this bill and crack down of China’s currency manipulation. This will give American-based companies a chance to compete on a level playing field. This will bring jobs, factories, companies and industries back the the United States, and you will be able to buy goods Made In America in our stores again.

 

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