China trade

In Other News China Trade Deficit Still Huge

Dave Johnson — Thu, 11 Oct 2012 14:18:28 -0400

The August trade figures are out and they are not good. The terrible trade deficit is where the jobs and the economy went but is ignored because it makes a few elites wealthy. Meanwhile our elites are whipping up fears about the budget deficit instead of the trade deficit, because they can use that fear to herd politicians toward a "grand bargain" that cuts taxes on the wealthy and corporations while cutting the things We, the People do for each other.

The Bad News

AP: US trade deficit rose to $44.2 billion in August,

The U.S. trade deficit widened in August from July because exports fell to the lowest level in six months. The wider deficit likely dragged on already-weak economic growth.

The deficit grew 4.1 percent to $44.2 billion in August, the biggest gap since May, the Commerce Department said Thursday.

Exports dropped 1 percent to $181.3 billion. Demand for American-made cars and farm goods declined.

Imports edged down a slight 0.1 percent to $225.5 billion. Purchases of foreign-made autos, aircraft and heavy machinery fell. The cost of oil imports rose sharply.

[. . .] For August, the deficit with China dipped 2.3 percent to $28.7 billion. U.S. exports edged up modestly, while imports from China fell. For the year, the U.S. deficit is on track to surpass last year's record, the highest ever recorded with a single country.

The widening trade gap with China has heightened trade tensions between the two countries. And it has become a flash point in the presidential race. GOP challenger Mitt Romney has promised a tougher approach than President Barack Obama with trade practices that he says are giving China unfair advantages.

Two key take-aways:

We had an international goods and services trade deficit of $44.2 billion.
The monthly goods deficit with China fell slightly to $28.7 billion from $29.4 billion in July. This is the second highest monthly trade deficit with China this year.

Here is the Census Bureau release.

Here is the Bureau's Trade in Goods with China.

Trade Deficit Drains Jobs, Economy, Makes Workers Accept Lower Wages

The trade deficit, especially the trade deficit with China, costs jobs and jobs and jobs. From the post, Report On Job Cost Of Trade Deficit With China,

So just how many jobs are lost to trade deficits? A new report, The China Toll, takes a look at the effect of our trade deficit with China since that country joined the World Trade Organization (WTO) ten years ago, and comes up with some very specific numbers. In summary:

"Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state"

The trade deficit also drains the economy, and sends essential pieces of the industrial ecosystems out of the country. Note that even if we double exports, as the President is working to do, we continue to drain our economy if this doesn't catch up to the level of imports. From Trade Deficit - One Root Of Many Problems,

You buy things till your wallet is empty. So you raid the savings account to buy more stuff. Then you get a loan, and buy more stuff. Another loan, another, you keep buying stuff... Finally you're selling off the tools you had used to make a living. That's where the country is now because of the huge imbalance in our trade relationships. We buy more from them than they buy from us and we have let this go on and on and on. This is the deficit we should be worried about.

The trade deficit makes workers afraid, so they work longer hours, skip vacations and accept cuts in wages and benefits, which also hurts the economy. From Job Fear From Trade Deficit Is What Happened To Jobs And The Middle Class,

The middle class is disappearing. Our economy is "hollowing out" because the money goes to the top and the people fall to the bottom. This is because we allow American companies to close factories here and open them there, shipping the same goods back here to sell in the same stores, costing jobs, companies, industries and our economy. This makes us afraid for our own jobs and afraid to make waves. By helping a few at the top get fabulously rich, China has essentially recruited our own businesses leaders to fight against our own government - and us.

The trade deficit is the problem we should be terrified by, not the budget deficit. If we fix the trade deficit and jobs that will fix the budget deficit!

Wanted: Tough Trade Negotiator

Isaiah J. Poole — Tue, 24 Aug 2010 15:58:08 -0400

Our Worsening Technology Trade Deficit

Isaiah J. Poole — Sun, 15 Aug 2010 22:53:51 -0400

Clyde Prestowitz On 'The Betrayal Of American Prosperity'

Isaiah J. Poole — Wed, 19 May 2010 15:19:31 -0400

Trade expert Clyde Prestowitz, president of the Economic Strategy Institute, discusses his new book, "The Betrayal of American Prosperity," at the AFL-CIO headquarters in Washington May 18. The book looks at what Prestowitz calls the "false doctrine" of free trade and suggests a new framework for how America should compete in the global economy.

American Betrayal, Sponsored By Intel

Isaiah J. Poole — Wed, 19 May 2010 13:43:55 -0400

LISTEN

Hear Clyde Prestowitz discuss the central theme of his book, "The Betrayal of American Prosperity."

If trade expert Clyde Prestowitz’s latest book, “The Betrayal of American Prosperity,” were a television series, one segment would open with this voiceover: “This episode of ‘The Betrayal of American Prosperity’ is brought to you by Intel.”

A group of Chinese workers in white smocks would smile into the camera and sing, “Bahm-bom-bom-bahmmm.”

Intel is indeed the sponsor of the latest act of the betrayal of American workers, who were told by the apostles of free trade and conservative corporatism that it’s OK if nitty-gritty manufacturing jobs went overseas; our supremacy in technology would create opportunities that would more than make up for the blue-collar jobs that were being rapidly exported.

But later this year Intel will open a $2.5 billion plant in Dalian, China that is just the latest example of how the free-traders’ line has proven false. The plant will serve China’s huge demand for lower-end processors, but there is speculation that if Intel can work around U.S. technology export controls, it would move higher-end production to the new facility as well.

At a presentation at the AFL-CIO headquarters in Washington May 18, Prestowitz used Intel as Exhibit A in how American workers are losing as a result of misplaced faith in free-marked orthodoxy and failed American economic policy. “The Betrayal of American Prosperity” details the history and consequences of this failure and offers policy recommendations for rebuilding the country’s job base.

“We’re in a world in which all of the incentives are such as to facilitate the movement of production of tradable goods and the provision of tradable services out of the United States,” Prestowitz said. “It doesn’t matter if they are low-tech, high-tech or medium-tech, they are all moving out.”

In the case of Intel and its new plant in China, which has plants in New Mexico and Oregon, many of the factors that are often used to explain the outsourcing of jobs to other countries don’t apply.

“Is the labor cost going to be less? Well, it will be less, but the labor cost is insignificant in semiconductor production,” Prestowitz said. “Will the operating costs be less? No, it will probably be higher. Will the quality be higher? No, probably worse. Well, will the productivity be higher? No, probably won’t be as good.”

Even the Chinese government’s currency undervaluation, which gives Chinese manufacturers an effective 40 percent cost advantage for their exported goods, is not a major concern for Intel, given that it has no roughly equal competitor.

“So, what’s going on? The answer is, this is a $6 billion investment, and of that $3 billion are being put up in one way or another by the Chinese government,” Prestowitz said. The government investment benefits Intel's bottom line to the tune of $100 million a year over 10 years.

On the website of the American Chamber of Commerce in China, an article confirms that the Chinese government was “influential in persuading Intel to setup its semiconductor manufacturing plant in Dalian,” and notes that, among other things, the Chinese government is building high-speed rail links, new highways and port facilities that would support new industry in Dalian and surrounding areas.

Prestowitz said that America does not have a policy that matches what China and other Asian countries are doing to encourage American firms to stay in America and produce jobs here at home. Merely cutting taxes and hoping for the best doesn’t count.

Prestowitz encouraged a contrast between how Chinese officials and American officials deal with American business leaders. When an American business leader goes to China to cut a deal, Prestowitz said, “you need to prove that you are a friend of China”—and that means moving a significant share of your production to their country and hiring their workers.

When was the last time an executive of a multinational business was challenged to demonstrate that he or she was a “friend of the United States” in that same way?

The pressure that China exerts on businesses that want access to its market “is a very powerful, subtle, unquantifiable factor that does not exist in the United States,” Prestowitz said.

The United States has the huge trade deficit and weak domestic economy that it has because “there’s been a big scam going on in the United States for the past 40 or 50 years,” Prestowitz said. “The scam is that the economists use the term ‘free trade,’ and they know that the average guy doesn’t understand that when they say ‘free trade,’ they means unilateral.”

In other words, “free trade” is not really fair or reciprocal trade, in which countries agree to abide by shared rules in which both sides gain, but it is effectively unilateral disarmament, in which a country such as China can set its own terms for global trade and industrial policy and the United States acts as if its living in an Adam Smith world.

Prestowitz argues for coming out of that fantasy world and borrow from the playbook of its trade competitors. One of his recommendations is to have a war chest of federal funds that can be used to support businesses that expand production and create jobs in the United States, and aggressively court foreign manufacturers who want greater access to the U.S. market to move some of their manufacturing into the U.S. At the same time, he said, U.S. policymakers should fight for fairer trade rules and insist on enforcement.

“It’s not too late, but it’s getting late,” Prestowitz warned.

Myths And Facts About China Trade and Currency Manipulation

Mike Elk — Tue, 06 Apr 2010 11:00:00 -0400

So you want the U.S. to declare China a currency manipulator, which could lead to tariffs on goods imported from China. Won’t that spark a trade war?

The reality is that we are already in a trade war, but we aren't fighting back. Between 2000 and 2008, 2.4 million jobs have been lost to China's unfair trade practices, including its decision to peg its currency to the dollar, which helps make Chinese goods artificially cheap and U.S. exports to China artificially more expensive for Chinese consumers. During this period, the U.S. has tried to play nice, but that has resulted in nothing but lost jobs.

But what you're calling for is protectionism.

China is practicing its own form of protectionism by refusing to abide by the rules it agreed to when it joined the World Trade Organization in 2001. A February 2010 survey of foreign businesses in China shows that 38 percent of them feel unwelcome doing business in China. China repeatedly refuses to play by the rules of international trade in case after case, and the United States has filed a variety of WTO cases against China’s barriers to trade as a result. However, China has filed more charges before the WTO against unfair trade practices than any other country in the world last year. What we're asking for is for China to play by the rules and be held accountable when it doesn't.

Plus, it's not wrong for the United States to protect its own economic interests, and the jobs of its workers, in a way that respects the rules of global trade and the responsibilities that come with being a global economic power.

But if calling China a currency manipulator leads to a tariff on Chinese imports, that will raise the prices working families pay for thousands of basic household goods.

Actually, consumers won't see much of a price increase at all, if any. Think back to 2005: The Senate voted to impose tariffs against China, and China responded by allowing the value of the yuan to rise by 20 percent. Back then there were warnings that consumers would be paying a lot more for Chinese imports, but in reality there wasn't a noticeable impact on consumer goods prices. A 20 percent valuation similar to what China did in 2005 is being called for now and that would not likely have a major effect on the cost of consumer goods; to the extent that wholesale prices do rise, past history suggests retailers would absorb some of the blow themselves by accepting a lower profit margin. Plus, China setting its currency to market levels, or tariffs that would have a similar impact on import prices, would mean somewhat lower profits for Chinese companies.

Won't a currency revaluation hurt Chinese workers?

Whatever effect this has on Chinese workers could be offset by increases in Chinese worker's purchasing power. That's the view of people such as Lenovo CEO Yang Yuanging, who was recently quoted in Business Week making that very point. Also, it would help reduce inflation in China caused by the price of the yuan being held artificially low.

What if China retaliates by refusing to buy our debt or selling off all of our debt?

This is a good thing. As economist Dean Baker argues "The United States has absolutely nothing to fear from China's decision to reduce its investments in the United States and allow the dollar to fall and the yuan to rise. This decision would mean that the United States could finally get its trade deficit down to a manageable level. The trade deficit has been the leading imbalance in the U.S. economy over the last decade." Clearly, NOT doing anything would only make the problem worse.

Wouldn't China selling off our debt destroy our economy and ability to borrow as a nation?

China selling off its debt would hurt China's economy even worse since they have invested so heavily in the U.S. China has $1.5 trillion in U.S. assets and there is simply no one that would to buy them. China would be forced to take a huge loss on these assets. So it’s unlikely they would do anything that would negatively affect their own economy.

Won't pushing China on currency make it more difficult to address our own budget deficit?

The opposite is true. Producing more products in the United States would mean more Americans working and paying taxes instead of collecting unemployment, thus helping us to reduce our budget deficit. It would mean we are earning money instead of borrowing to buy things, leading to a more stable economy.

End the Denial; Label China a Currency Manipulator

Leo Gerard — Thu, 01 Apr 2010 10:48:52 -0400

America and China share a terrible delusion. They are in denial about currency manipulation. Both officially state that China is not devaluing its currency.

In mid-March, Chinese Prime Minister Wen Jiabao flatly denied that China deliberately suppresses the value of its currency against the dollar, a practice that decreases the price of its exports and increases the cost of America goods imported into China. Similarly, the U.S. Treasury Department, which is required by the Omnibus Trade and Competitiveness Act of 1988 to name foreign currency manipulators in bi-annual reports, has not in the past decade and a half called out China — including in the past two reports submitted during the Obama administration.

China and America decline to acknowledge what everyone else knows: China suppresses the value of its currency to gain a trade advantage over America. The New York Times reported on the practice in a story published March 14 describing how currency manipulation has worked wonders for Chinese industry while killing American manufacturing.

Treasury Secretary Timothy Geithner came to Pittsburgh, home of the United Steelworkers’ International Headquarters, this week to talk about the competitiveness of U.S. manufacturing. He visited a modern Allegheny Technologies Inc. specialty steel mill and met privately with business and union leaders. We deeply appreciate his time and attention. What he must do now, as a first step in leveling the playing field with China, is insist that the Treasury label China as a currency manipulator in the next report, which is due April 15.

That would end the denial – at least on the U.S. side — and could set in motion sanctions to reduce the manipulation or at least the effects of it. Ending the imbalance would create between 1.5 million and 3 million U.S. jobs, without Congress passing a new stimulus bill, without adding a dollar to the national debt.

America has talked to China about this problem for too long. Three years ago, AFL-CIO President Rich Trumka, who was then the federation’s secretary-treasurer, wrote that over the previous seven years warnings had proved worthless:

“The script is always the same. The Treasury Department admits there is a problem but can’t find a technical violation of the law. Then comes a warning against Congress taking action that is followed by a promise of increased dialogue with the Chinese government.”

That dialogue never produced effective results. China briefly allowed its currency value to increase by about 15 percent against the dollar from July 2005 to July 2008. China stopped the revaluation at the height of the world economic crisis. The 15 percent rise now has been offset by increased productivity in China, according to conservative economist C. Fred Bergsten, the free-trader and currency expert from the Peterson Institute for International Economics. So the net effect of the brief Chinese currency float is zero.

Still, U.S. Trade Representative Ron Kirk is suggesting more dialogue. He told the Associated Press in Brussels late in March, “. . .my first preference is always to see if we can’t build a partnership to work with China to see if we can’t get a resolution sooner rather than later.”

This inexplicable response came after Chinese premier Wen Jiabao denied that China’s currency – called renminbi and traded in a denomination called yuan — was undervalued. And China’s Vice Commerce Minister Zhong Shan said, “It is wrong for the United States to jump to the conclusion that China is manipulating currency from the sheer fact that China is enjoying a trade surplus. . .Besides, it’s wrong for the United States to press for the appreciation of the renminbi and threaten to impose punitive tariffs on Chinese exports. That is unacceptable to China.”

It is unacceptable to America to continue countenancing China’s currency manipulation.

It’s too costly to America.

It works like this. Chinese exporters are paid in dollars. They exchange them for yuan in Chinese banks. No matter the value of the dollar on the international free market, the state-controlled market in China pays 6.83 yuan for every dollar. While the value of the dollar fluctuates against the Euro and other market-based currencies from day to day, China determines its exchange rate to be 6.83 every day.

In a market-based economy, the value of currency in an export-strong country increases. That is what would happen to the yuan if China stopped interfering in the exchange rate. Essentially, demand for Chinese goods would raise their prices. But that doesn’t happen in China because the government stops it. China’s manipulation has caused the yuan to be undervalued by between 20 and 40 percent, according to even the most conservative economists.

The result is that every time a Chinese company sells a $1 product in the U.S., it has received a subsidy from the Chinese government of as much as 40 cents.

That makes competition extremely difficult for U.S. companies that don’t get such subsidies. It is a primary cause of the U.S. trade deficit. China’s share of the U.S. non-oil goods trade deficit tripled since 2005. China accounted for 80.2 percent of the entire U.S. non-oil trade deficit with all countries in the world in 2009.

That costs the U.S. jobs. The Economic Policy Institute released a study in March showing that since 2001 when China joined the World Trade Organization, 2.4 million jobs have been lost or displaced in the U.S. as a result of the growing trade deficit with China.

Unions, industry leaders, and both Republican and Democratic politicians are all sick of the talking about manipulation. During a Congressional hearing on the undervalued yuan in March, Nucor Corp. Chief Executive Officer Dan DiMicco complained about U.S. inaction, saying, “We are in a trade war. We just haven’t shown up for it.”

In mid-March, 130 Congressmen, including 40 Republicans, sent a letter to Secretary Geithner asking him to label China a currency manipulator in the April 15 report. They also asked Commerce Secretary Gary Locke to apply countervailing duties on Chinese imports. That would be legal if China’s devalued currency is deemed an export subsidy, and they said that has been clearly demonstrated.

Just a day later, a group of U.S. senators, including Republicans Lindsey Graham of South Carolina and Sam Brownback of Kansas, introduced the Currency Exchange Rate Oversight Reform Act of 2010 to penalize countries like China that undervalue their currency to artificially discount their products exported to the U.S. The legislation, if passed, would effectively compel the Treasury Department to cite China for manipulation.

“We’re fed up,” Graham told the New York Times:

“China’s mercantilist policies are hurting the rest of the world, not just America. It helped create the global recession that we’re in. The Chinese want to be treated as a developing country, but they’re a global giant, the leading exporter in the world.”

China remains in denial. They’re so far in denial, this is what Mr. Wen said:

“I understand some economies want to increase their exports, but what I don’t understand is the practice of depreciating one’s own currency and attempting to force other countries to appreciate their own currencies, just for the purpose of increasing their own exports.”

That is exactly what China has done to increase its exports.

It requires China to essentially buy $1 billion worth of dollars a day. If the Chinese stopped currency manipulation, the value of those dollars would decline against the Chinese yuan, and the Chinese Treasury would suffer a significant loss on its investment – at the same time Chinese exports would rise in price.

That is why China continues to deny manipulation.

But every day America remains in denial costs the U.S. additional manufacturing bankruptcies and unemployment.

Secretary Geithner raised hopes that Treasury would end the denial when he said of China during his visit to Pittsburgh, “It is important that they take the steps they said they would to take their currency to a more flexible system.”

***

Click here to tell the Treasury Department to stop denying that China is manipulating its currency.

Consumers Vs. Workers In The Currency Debate

Natasha Chart — Thu, 01 Apr 2010 03:10:16 -0400

The debate over what to do about Chinese government currency manipulation often hinges on whether you're being talked to as a consumer or a worker. Most likely, you're both--or were, or are planning to be--and you know that if you want to boost your standard of living, you have to either buy cheaper or earn more. (Or, you might be talked to, as Stephen Roach has done in a recent editorial, as an investor, which most people just tune right out. We'll get back to that.)

For a long time, the US' official trade policy has been that Americans' should primarily look to boost their standard of living through buying cheaper. For a long time, that seemed mostly fine.

Though in talking about the Chinese government's currency practices yesterday, my colleague Dave Johnson pointed out that they were only a piece of a larger industrial strategy. The goal of that strategy isn't to pointlessly antagonize anyone, it's to increase employment as fast and as much as possible, and keep increasing it, so that the Chinese people will feel like it's possible to get ahead in life through the job market and will remain relatively content.

Because China's government is willing to buy a lot of US debt to keep its currency low in comparison to the dollar, because average Americans have been happy getting such low prices and the investor class has been enjoying the returns of offshoring, it's been hard to maintain ongoing concern over the fact that jobs have been leaving for China at an amazing rate.

The job issue was papered over by the credit bubble, but the public no longer has the kind of spending power necessary to reinflate it. Our jobs left, the banks won't lend us anymore money, and all that spending didn't go to building new industries to employ Americans.

Despite rumblings to the contrary, the Chinese government wants to hold firm, both because they're committed to having a high-employment economy and because they don't want the value of their dollar-denominated assets to drop by in value by as much as $480 billion by letting their currency float freely against the dollar.

On the one hand, it's often said that as a significant debtor, the US doesn't have much leverage. But the US government isn't me staring hopelessly at my Sallie Mae balance, it's still, amazingly, one of the more stable purveyors of liquid assets in the world. If the Chinese government were to retaliate by rapidly selling off their $800 billion and change in Treasury debt, the likeliest outcome is a market panic that would crash the worth of their remaining holdings before they could unwind them, and they'd have a hard time finding a ready alternative outlet for all that idle investment capital, anyway.

They can't outright put the torch to our economy without burning down their own. They're invested in us. They'd have to back away fairly slowly. Though if they did so, because our economy is so import dependent, there probably would be a downward adjustment in consumer purchasing power that the US government would need to offset by becoming as committed to expanding employment as the Chinese government is.

Within China though, this also means their government isn't investing in their own wages and purchasing power. On the bright side for them, there are no short-term circumstances where Chinese workers end up staggering around with a debt hangover from a low-wage, cheap consumer credit economy (the bubbles, they always get you, like with champagne) and left with a government that doesn't give a damn if they have a job or not.

And we're right back at the main problem, which is that the sober, responsible, conventional wisdom consensus on economic policy in the US has been for a long time that no one needs to worry about whether Americans have jobs, only about whether they can buy cheap things.

Someone like Stephen Roach, one of these people who treat economics like a modern theory of the Divine Right of Kings, thinks that a problem created by currency hoarding needs to be solved by more currency hoarding in the form of increasing the savings rate. His recent Financial Times op-ed on the currency imbalance is as good an example as any of the panicked response to any hints that something might be done to fix things:

... With China and its so-called manipulated currency having accounted for fully 39 per cent of the US trade deficit in 2008-09, Washington maintains that American workers can only benefit if it gets tough with Beijing.

However appealing this argument may seem, it is premised on bad economics. In 2008-09, the US had trade deficits with more than 90 countries. [Note: The trade imbalance with China accounts for over 80% of our non-oil trade deficit. The US buys a lot of oil.] That means it has a multilateral trade deficit. Yet aided and abetted by some of America¹s most renowned economists, Washington now advocates a bilateral fix either a sharp revaluation of the renminbi or broad-based tariffs on Chinese imports.

... The US would be far better served if it faced up to why it is confronted with a massive multilateral trade deficit. America¹s core economic problem is saving, not China. In 2009, the broadest measure of domestic US saving the net national saving rate fell to a record low of -2.5 per cent of national income.

... Currency, or relative price, adjustments between any two nations are not a panacea for structural imbalances in the global economy. What is needed, instead, is a shift in the mix of global saving. Specifically, America needs deficit reduction and an increase in personal saving, while China needs to stimulate internal private consumption. ...

Right now, under current conditions, what Roach is basically asking for here is for the US to go deeper into recession in order to satisfy his model of what an economy should look like.

Though the worst thing Roach does here isn't to skip right over the fact that contractionary spending practices would make the recession worse, throw more people out of work, and further depress wages. It's that he doesn't care, and doesn't want his readers to care, that stagnating wages hidden by a credit bubble that covered the resulting insolvency are the whole reason we're in this mess right now.

They've asked us to be happy for years that we can get t-shirts for $1 off at a discount store and put it on our credit cards. This was supposed to make up for the fact that we didn't get that $1 an hour raise we should have gotten several years in a row to make up for the rising prices of housing, transportation, education, health care and wholesome food. This was supposed to make up for the fact that jobs started disappearing left and right, taking opportunities to climb out of poverty with them.

The American public has been talked to as consumers for a long time. But we all know that the money to spend has to come from somewhere and we're willing to work to earn it. Our policymakers need to create an environment where we can get good work, and they need the courage to ignore the comforting drone of those who say we should do nothing and let things run their course.

People have bills to pay, and our creditors don't really care if our personal insolvency is helping out the economy's natural swing towards parsimony. We need jobs in this country, and we need political leaders willing to think about our needs as workers at least as much as they think of our needs as consumers.

Factbox: U.S. Players in China Currency Decision

Isaiah J. Poole — Wed, 24 Mar 2010 16:23:28 -0400

An April 15 deadline for President Barack Obama to decide whether to label China a currency manipulator is creating trade tensions across the Pacific and stoking fears of a damaging row. Here is a description of the roles played by U.S. institutions involved in the decision or which could be affected by its outcome.

Why China's Currency Matters To American Jobs

Isaiah J. Poole — Wed, 24 Mar 2010 10:45:34 -0400

Here are some basic facts you should know about the China currency dispute and how progressive experts say the United States should respond.

What’s the impact of unfair Chinese trade and currency policies on American jobs?

The U.S. has lost 2.4 million jobs between 2001 and 2008 as a result of China's trade and currency policies. According to a March 2010 study by the Economic Policy Institute, jobs have been lost in every single congressional district in the country. And these aren't just obsolete manufacturing jobs: Since 2001, we have lost more high-tech jobs than manufacturing jobs Economist Rob Scott of EPI believes that if China were not engaging in currency manipulation, the net impact would be an additional 3 million jobs in America in the next few years.

What do you mean when you say "currency manipulation"?

Most major countries, including the United States, allow the value of their currency to "float," continuously rising upward or downward based on global demand for the currency and the strength of their economies. But a few countries, China being the largest, "fix" the value of their currency so it does not fluctuate with conditions in the market. China pegs its exchange rate to the dollar. Since 2008, the rate has been 6.83 yuan to the dollar. Before 2008, the last time China adjusted the exchange rate for the yuan was in 1994, when the rate was 8.28 yuan to the dollar.

The Chinese central bank maintains this fixed exchange rate by buying (or selling) as many dollars as possible, instead of allowing the value of good produced and sold to determine the yuan's value. Meanwhile, as the value of the U.S. dollar has gone up and down against the value of every currency in the world, as the accompanying chart shows, it has remained constant against the yuan. That's kept the value of the yuan artificially low—by as much as 40 percent, say many economic experts. (Include Chart)

How does that affect jobs here in the U.S.?

It makes goods China sells to the U.S. cheaper than they would otherwise be and goods that the U.S. wants to sell in the Chinese market more expensive, thus making it tougher for America industries that employ American workers to compete. Most economists say that China's fixed currency policy amounts to a 25 percent to 40 percent illegal subsidy of its exports. Economist Paul Krugman was recently quoted as calling it "the most distortionary exchange-rate policy any major nation has ever followed. And it's a policy that seriously damages the rest of the world."

Aren’t there rules against what China is doing?

Yes. The World Trade Organization and the International Monetary Fund prohibit currency manipulation and illegal subsidies as a barrier to free trade. And the United States has several times in the past identified countries, including China, as currency manipulators.

So what should we do about it?

On April 15, the Treasury Department is expected to release its biannual report on global currency exchange rates. In that report, Treasury Secretary Timothy Geithner can declare China a currency manipulator, and that would set the stage for the U.S. to impose tariffs on imports from China to offset the impact of that manipulation. Meanwhile, Sen. Charles Schumer, D-N.Y., has introduced a bill that would allow the U.S. to impose tariffs on imports from countries with "fundamentally misaligned currencies." He and 14 other senators also signed a letter calling on the Commerce Department to investigate currency manipulation. Calls for tough actions such as these are supported across the political spectrum.

But the U.S. must also address its larger problem, it's lack of an economic strategy for manufacturing in a 21st-century global economy. Other major economic powers take steps to support domestic manufacturing while also being fully engaged in free and fair trade that does not depend on unfair, heavy-handed currency manipulation; the U.S. should do the same.