U.S.-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!

Why The Latest Trade Complaint Against China Matters

Dave Johnson — Tue, 18 Sep 2012 12:57:00 -0400

The Obama administration has filed a trade complaint against China for violations involving "extensive" government subsidies for autos and auto parts.

From Reuters, at HuffPo: Barack Obama: China Auto Subsidies 'Directly Harm Working Men And Women',

"These are subsidies that directly harm working men and women on the assembly lines in Ohio and Michigan and across the Midwest," Obama told a campaign rally. "We are going to stop it. It is not right, it is against the rules, and we will not let it stand."

Why This Matters

The auto industry is targeted for takeover by China because it is seen as a(nother) key provider of high-paying jobs, export revenue and therefore national economic strength. The Seattle Times explains, in WHY IT MATTERS: China's auto parts industry.

The United States, China and other governments see the auto industry as an important source of higher-paid jobs and export revenue. The 2008 global crisis fueled complaints in the West that Chinese policies on a wide range of industries might be wiping out jobs abroad.

Chinese automakers exported only about 500,000 autos last year, mostly to the Middle East, Southeast Asia and other developing markets. But its producers of tires, aluminum wheels, radios and other components are making inroads in U.S., European and Japanese markets. They have yet to break into the top ranks of suppliers along with companies such as Delphi, Visteon or Europe's Michelin and Bosch. At the lower end of the market, Chinese suppliers are increasing their global share, putting pressure on smaller Western competitors.

China's strategies, from the same article,

Beijing has an array of strategies to support industries targeted for development, ranging from clean energy to mobile phones to autos. Companies can receive tax breaks and low-cost bank loans, energy and land.

The WTO allows research grants and some other aid, but critics say China violates rules that prohibit making exports a condition of support. They say Chinese policies have encouraged auto parts manufacturers to shift production to China, hurting employment abroad.

The key:

Employment in the U.S. auto parts sector shrank by roughly half between 2001 and 2010, while U.S. imports of auto parts from China have increased seven-fold, according to the Obama administration.

400,000 Jobs Lost, 1.6 Million More At Risk

In January three separate reports were released showing how China's illegal subsidies and other trade violations were causing job loss and damaging our supply chains. The Alliance for American Manufacturing (AAM) described the reports in New Reports Show China’s Illegal Trading Practices Endanger U.S. Auto Supply Chain,

More than 400,000 jobs in the U.S. auto supply chain have been lost since 2000. One major problem is China's persistent violations of World Trade Organization (WTO) rules, and another 1.6 million U.S. jobs are at risk unless China's illegal trading practices are curtailed, according to three separate reports released in January of 2012.

Taken together, these three reports show beyond a shadow of a doubt that China's blatant use of illegal government subsidies and a web of predatory trade practices on a massive scale are undercutting companies in the U.S. auto supply chain.

The three reports from January:

Growing Threats to the U.S. Auto-Parts Industry from Heavily Subsidized Chinese Tires and Parts, conducted by Robert E. Scott and Hilary Wething of the Economic Policy Institute (EPI), notes that a substantial portion of jobs in the U.S. auto industry are in the auto-parts sector, with direct and indirect auto parts jobs in virtually every state. The report concludes that “every one of these [1.6 million U.S.] auto-parts jobs is individually at-risk from this unfair trade competition.” Research by AAM has found that the auto parts sector comprises 75% of employment in the U.S. auto industry.
Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, conducted for EPI by Usha C.V. Haley, cites $27.5 billion in government subsidies to the Chinese auto-parts industry and notes that China’s central government has committed to disbursing an additional $10.9 billion in subsidies for industrial restructuring and technological development of the industry.
China’s Support Program for Automobiles and Auto Parts Under the 12th Five Year Plan, by Stewart and Stewart, a prominent law firm that has won cases challenging China’s unfair trading practices, offers evidence that the massive government subsidies being given to Chinese producers, which are in violation of China’s WTO commitments, will continue for years to come unless challenged by Congress and the President.

The Biden Effect...

Scott Paul — Thu, 18 Aug 2011 10:32:17 -0400

China knows how to play us. In the days leading up to Vice President Biden's visit to Beijing, China's Central Bank took the Yuan to an all-time high against the dollar, just in time to fend off serious criticism of its ongoing currency manipulation. Let's be charitable and call it the "Biden Effect." Thanks, Mr. Vice President.

China's action seems to confirm two things. First, there is a strong correlation between U.S. political pressure and the Yuan-dollar exchange rate. Second, we may need to send more high-ranking Administration officials to China on a regular basis. That way we could test the theory more thoroughly.

China’s currency peg has been a decade-long problem for U.S. manufacturers and workers, artificially cheapening Chinese exports while simultaneously raising the cost of products shipped to China. Prominent economists with free trade credentials--Paul Krugman and Fred Bergsten--have called for sanctions on China unless it revalues the Yuan.

Still, the Yuan by most estimates is at least 30 to 40 percent undervalued because those sanctions have never materialized. China began to float the Yuan in 2005 after an overwhelming Senate vote to sanction it, and began to float it again last year in the face of possible humiliation at the G20 meeting.

On the campaign trail in 2008, President Obama promised to get tough with China on currency. Five times the Obama Administration had the opportunity to designate China as a currency manipulator (which it clearly is), and five times the Obama Administration has failed to do so. The Senate passed a bill in 2005, the House passed a bill last year, but Congress has never sent a bill to the President giving our workers and businesses a new trade law tool to fight back against this unfair trade practice.

The "Biden Effect" will only last a few weeks. Meanwhile, the wrecking ball that comes in the form of China's cheating will continue to destroy good American manufacturing jobs. The lesson is clear: we must stop currency manipulation by deterring it. If China has an incentive to freely float the Yuan, it will do so. That incentive must be continued access to our market. China has no substitute for the American consumer market and depends on U.S. consumption to support a sizable portion of its manufacturing employment. The choice for China would be an easy one to make, as they could adjust to a higher-valued Yuan, but they could not adjust to life without access to our market.

So, it's well past time to call China's bluff on its currency manipulation. Congress should swiftly pass bipartisan legislation to tackle illegal currency subsidization. A House bill received overwhelming support in the last Congress, including cosponsorships from key Republicans such as House Ways and Means Committee Chair Dave Camp. A companion bill should pass easily in the Senate.

The Administration must do its part, as well. Citing China as a currency manipulator would send China a clear signal: no more business as usual. The Administration could also threaten to put the earnings owed to China on its U.S. government bond purchases in escrow until China floats the Yuan. Why pay back a thief?

Rather than tolerate the silly charade of China raising the value of the Yuan just enough to avoid serious consequences, it's time to install a permanent deterrent. Ending the Yuan’s peg would mean shipping U.S. products to China, instead of our jobs. Plus, we're running out of high-ranking Administration officials to send to Beijing.

U.S.-China Trade and Jobs: It's All A Matter Of Perspective

Steven Capozzola — Fri, 08 Apr 2011 11:13:21 -0400

In a New York Times Economix blog post, David Barboza suggests that things are looking better in U.S.-China trade because America's exports to the People's Republic are increasing.

Barboza cites a U.S.-China Business Council study that shows American exports to China soaring 32% last year, to a record $91.9 billion. The Council says China is now the world’s fastest-growing destination for American exports and that American exports to China have jumped 468% over the past decade.

Sounds good, right?

Actually, there's a bit of a hidden problem. As Alliance for American Manufacturing (AAM) Executive Director Scott Paul commented, the export data to China is misleading not only because of price inflation but also because it doesn't reveal what those exports really are:

Some of our fastest growing exports to China are scrap metal, scrap paper, and raw unprocessed commodities. Moreover, very few other goods we export to China are finished goods that end up in the hands of Chinese consumers. We are exporting capital goods to build factories (that will compete against us), as well as components that will be assembled into finished products and shipped back to the U.S. Barboza also fails to point out that our trade deficit with China continues to grow. It was a record last year.

What this really means is that:

1. U.S. exports to China very much resemble those of a third world country: scrap and recycled materials along with agricultural products.

2. These exports do not support job growth in the U.S. Ie. farm employment in not booming, and the U.S. is not hiring workers to make scrap material and recycled paper.

3. The U.S. trade deficit with China reached a record in 2010 of $273 billion. Exports may be increasing, but imports are climbing at a much greater rate--which represents a continuing drain on U.S. jobs.

Barboza essentially acknowledges all of this, saying, "much of what China imports is used to make goods that are then re-exported, like the Apple iPhone."

And, in addition to these turnarounds, Barboza also acknowledges that "exports of crops to China jumped to $13.8 billion last year," and that "China is hungry for other resources as well, like recyclable metals and paper." He cites New York state’s biggest export to China in 2010: “waste and scrap."

This is not how to make trade work for the U.S.

The U.S. competes head-to-head with China in autos and auto parts, energy-intensive industries (steel, glass, paper, etc.), clean energy goods, high tech goods (like semi-conductors), machine tools-- the list goes on. Those are the sectors of value-added products that need to be exported. They support good-paying jobs, they drive innovation, they balance the trade ledger.

What's needed is a strong industrial policy to ensure these industries succeed and can actually continue to export.

Should GE's Jeffrey Immelt Really Be Leading Our Job Creation Strategy?

Scott Paul — Fri, 21 Jan 2011 10:06:35 -0500

There is no swifter way to alienate working class voters than to name an outsourcing CEO to lead your jobs strategy. Yet that’s exactly what President Obama is doing.

General Electric CEO Jeffery Immelt has fooled the media and the White House into believing that he cares about American manufacturing jobs. I have a hard time imagining a worse pick, unless Obama would have tapped Immelt’s predecessor Jack Welch, who seemed fine with the idea of putting factories on barges in search of the lowest wages in the world.

Let’s look at GE’s jobs record. You would have difficulty finding a company that has outsourced more jobs and closed more American factories than GE. While they have slashed their American workforce to fewer than 150,000, GE has dramatically expanded its global presence, now employing over 300,000 workers worldwide. Yes, GE has brought a trickle of jobs back to the U.S. over the past two years, but it still outsources more than it insources. And those executives at GE are not clueless—they realize the value of good publicity as it announces new hires at a time like this. But they do not devote nearly the same amount of publicity to their factory closings.

Immelt’s prescription for boosting manufacturing harkens back to the days of bloodletting as a medical procedure: bad policy with consistently poor results.

In a speech to the Detroit Economic Club in 2009, Immelt berated “Buy American” policies while acknowledging that GE lived under domestic preference regimes in China, France, and other nations. In Immelt’s mind, it is fine for China and France to require to GE to make what it sells in their nations, but it’s not OK for America to do the same.
Immelt essentially rules out any enforcement of our trade laws in his Washington Post op-ed today through a spurious claim that distorts the issue. So China can cheat all it wants, and Immelt wants us to do nothing. Trade enforcement is not “erecting barriers,” as Immelt alleges. Rather, trade enforcement is about removing distortions from the free market. Immelt reveals his true stripes with this ridiculous assertion. It’s a dangerous statement, and it demands an immediate and forceful rebuke from the White House.
Immelt supported two of the most disastrous economic policies of the post-World War II era: financial deregulation and China’s entry into the World Trade Organization with few, if any, consequences for breaking the rules.

The result of policies Immelt has supported: one-third of our manufacturing workforce gone in a decade. 50,000 shuttered factories. At least $245 billion in real wage and salary losses for manufacturing workers. Record trade deficits with China. In short, our worst decade in manufacturing history—by most measures even worse than the Great Depression.

Blue collar workers in the Industrial Heartland—swing states like Pennsylvania, Ohio, Michigan, Indiana and Wisconsin—will not be impressed. The President would have been well advised to select a business leader committed to pragmatic policies to revitalizing manufacturing. Intel’s former CEO Andy Grove, U.S. Steel’s John Surma, Nucor’s Dan DiMicco, or Chandra Brown of United Streetcar—which built an industry out of nothing—would all have been far superior choices. And, leading thinkers on manufacturing strategy like Leo Gerard of the United Steelworkers should be intimately involved.

The White House jobs council will fail unless it embraces ideas that will get our economy moving again and that enjoy widespread support. Here’s a good list for them to start with:

• Eliminate our trade deficit through boosted exports, vigorous trade enforcement, and penalties for China’s cheating on currency, subsidies and intellectual property. Congress and the Administration should approach the trade deficit with more vigor—it will make balancing the federal budget a whole lot easier.
• Investment in our nation’s crumbling infrastructure that goes well beyond the Recovery Act projects. Where’s our next Hoover Dam, Golden Gate Bridge, Erie Canal? The answer right now, unfortunately, is somewhere in China. We need to think big on high speed rail, a smart grid, universal broadband, and more efficient transportation arteries and hubs.
• Buy America policies—perfectly within our rights—that ensure tax dollars are reinvested in American workers. [http://americanmanufacturing.org/content/buy-america-works]
• Focusing on skills and training for industrial careers. Germany begins preparing its manufacturing workforce at age 16. We warehouse those kids. It’s no wonder we are falling behind.
• Revitalizing our innovation base, which is also moving offshore. We need federal investment to connect our great research universities, domestic manufacturers, and best private labs to make sure that the next technical breakthrough is not only invented here, but made here.
• A better tax structure for domestic production. Taxes for manufacturers who keep their production and income in the U.S. are high compared to our competitors. We should not give a blank slate to corporations, but rather target tax breaks to companies committed to investing those savings domestically.

Some of these ideas have already been embraced by the President and Jeffrey Immelt, but key aspects of this plan have been summarily rejected by Immelt in the past. If the President really wants a game changer on jobs, he picked the wrong guy with the wrong ideas to lead the effort.

Changing Our Dysfunctional Relationship with China

Scott Paul — Wed, 19 Jan 2011 10:34:56 -0500

With Chinese President Hu Jintao’s state visit, it is a good time to reflect on how the dysfunctional U.S.-China relationship has developed, and to consider why it may be time for a trial separation. For nearly 40 years, the U.S. and China seem to have modeled their partnership on Sid and Nancy.

President Nixon opened relations with China as a strategic move during the Cold War. What he opened, in fact, was a can of worms, as China now possesses stealth fighters, satellite-destroying missiles, and economic clout that put the Soviets to shame.

But Nixon was not the last President to make miscalculations with regard to China. The tepid, brief response of President George H.W. Bush to the Tiananmen Square massacre meant the Chinese regime suffered only minimal consequences for its brutality. President Bill Clinton’s change of heart on linking Most Favored Nation trading status with China to its human rights record gave China a blank check throughout the 1990s.

Moreover, in what some historians may mark as one of the most serious blunders of the post-World War II era, President Clinton’s team negotiated an exceptionally weak deal when China entered the World Trade Organization. The U.S. agreed to lower tariffs on Chinese products, end its annual trade-linked review of China’s human rights record, and diminish many of trade enforcement options. In effect, the deal tied America’s hands even as China’s economic power—and mercantilism—expanded.

President George W. Bush, with a mounting Chinese trade deficit, denied every single petition for relief from Chinese import surges filed by American industry. So, for the first eight years of China’s entry into the rules-based trading system, China wasn’t asked to follow the rules. Cheating became endemic.

Enter President Obama, who spoke forcefully about China’s currency practices during the 2008 campaign. He criticized the terms of China’s entry into the WTO. To President Obama’s credit, his administration has stepped up trade enforcement. But at this point, with a $270 billion annual trade deficit with China—resulting in 2.4 million lost manufacturing jobs or job opportunities to China—trade enforcement is akin to putting one’s finger in the dike. And, the Administration still refuses to cite China as a currency manipulator, an omission that defies both logic and good sense.

After more than two full decades of polite diplomacy, it’s time for America to consider another approach, because this approach is clearly not working. And the American people are ready for such as change.

As I said last week, the rise of China has made Americans deeply uncomfortable, yet the public sees very little attention to this concern in Washington. In the current political environment, we really have no answer to the rise of China, when, in fact, it should be an issue that unites Americans to a common purpose.

While we dawdle, China dawns. China will file more patents this year than America. China may, in fact, pass the U.S. to become the world’s top manufacturing nation this year; it is a title we have held for 110 years running. China now has the world’s fastest supercomputer and $2.78 trillion in foreign currency reserves.

The lesson here is not to emulate China, nor to blame the Chinese people, who suffer under an autocracy. Many of China’s economic gains are ill-gotten. Its mercantilism could wreck the global economy again. Its political oppression shows no signs of abating. Its military has alarming designs on the Pacific Ocean.

When China is not playing by the rules, we must call them on it, through aggressive trade enforcement and clearly defined consequences for Beijing if it does not revalue its currency in a meaningful way. We must be careful not to enrich the regime in China any further, which means lowering our staggering trade deficit with China. If China refuses to honor its commitments, we should consider, as Paul Krugman suggests, erecting a steep, unilateral tariff until China does comply. Ultimately, China needs access to the U.S. market more than we need China’s debt financing.

I doubt that President Obama can change the dynamic during this state visit by President Hu, but he must start. We cannot rewrite our history with China. But, we can change its arc.

The State of the Union is Uneasy

Scott Paul — Thu, 13 Jan 2011 12:55:19 -0500

President Obama delivered just the right speech in Tucson. Can he replicate that performance for his State of the Union address on January 25? For the sake of our nation’s economic well-being, he must.

Just as our national psyche needed some healing this week, our nation’s hopes and dreams urgently need a boost on January 25. Each day that has passed since our economy hit rock bottom gives us a bit more confidence. At the same time, some startling deficiencies in our economy have surfaced: anemic job creation, a hollowed-out productive base, stagnant wages, and persistent global imbalances.

Americans have not felt this insecure about their economic future since the Great Depression. This generation believes the next generation may be doomed to a lower standard of living with fewer opportunities to climb the economic ladder. The rise of China has made Americans deeply uncomfortable, yet the public sees very little attention to this concern in Washington. Instead, they receive lectures with platitudes about “American Exceptionalism,” the idea that we will always lead simply because we are, in a word, America.

It is true that we have conquered every obstacle thrown our way, including the Soviet threat and the rise of Japan’s economy. But these were not feats aided merely by providence. When the Soviet Union launched the Sputnik satellite, immense public investment in technology, manufacturing, and education allowed us not only to reply, but also to raise the stakes. The support for this effort was bipartisan and sustained.

The President needs to state clearly in his State of the Union address that we face another “Sputnik moment” with implications that may be far more consequential than the launch of that satellite in 1957. He needs to change the debate. In the current political environment, we really have no answer to the rise of China, when, in fact, it should be an issue that unites Americans to a common purpose.

Instead, so much of the time in Washington over the next few months is likely to be focused on divisive issues such as tinkering with health care, regulation, spending, and immigration. I’m not trying to minimize the importance of these issues, but they all avoid the unsettling truth: the best economic days of America may for the first time be behind us, and not ahead of us, unless we think—and act—much more purposefully.

When China does not play by the rules, we must call them on it, through aggressive trade enforcement and clearly defined consequences if it does not revalue its currency in a meaningful way. We must be careful not to enrich the regime in China any further, which means we must lower our staggering trade deficit with China.

Our prime focus, however, must be getting our own economic house in order. And that means starting with basics. Without a strong industrial foundation, our nation will never stand as tall as it should. We’ll never produce family-supporting jobs or see the levels of economic growth that we need to succeed. As long as we consume more than we produce, we will—both privately and publicly—spend more than we have. The Alliance for American Manufacturing (AAM) has outlined a comprehensive program for Congress and the President. We know our plan has broad support among all voters—Republicans, Independents, and Democrats. All that is lacking is the political will in Washington to get it done.

In addition to the trade measures I’ve identified above, the agenda also includes investment in skills and training, and our infrastructure. Our plan would make America the absolute best place in the world to make things by lowering taxes on our domestic producers and making sure that capital is abundant and affordable for firms that want to put our nation back to work.

We know the State of the Union will cover a lot of themes and delineate a mind-numbing number of programs. But if the State of the Union address fails to include a vision on how we make things again in this nation, it will be failing our future. If Tucson is any indication, the President can rise to the occasion. He must.

The Populists Tackle China’s Currency Manipulation

Steven Capozzola — Wed, 07 Apr 2010 15:18:11 -0400

In advance of Treasury Secretary Timothy Geithner’s visit to China tomorrow, members of the House Populist Caucus today issued a statement urging him to release a determination on Chinese currency manipulation.

The Populist Caucus includes: Reps. Bruce Braley (D-IA), Peter Welch (D-VT, DeFazio (D-OR), Michael Arcuri (D-NY, Betty Sutton (D-OH), Keith Ellison (D-MN), Steve Kagen (D-WI), Phil Hare (D-IL), Dan Lipinski (D-IL), Brad Sherman (D-27), Carol Shea-Porter (D-NH), and Dave Loebsack (D-IA). Their letter states that it is critical for Secretary Geithner to issue a report and address the issue of Chinese currency manipulation as quickly as possible.

Their statement reads:

“Secretary Geithner’s recent announcement that the Treasury Department is delaying the release of its bi-annual report on international exchange rate policies and delaying making a determination on Chinese currency manipulation is completely unacceptable and needs immediate corrective action. It is clear that China is maintaining its currency at a devalued exchange rate by pegging the renminbi to the U.S. dollar at a fixed exchange rate, and that this unfair policy is having a detrimental impact on American workers and companies. China’s undervalued currency lowers the price of Chinese exports, makes U.S. exports to China more expensive, and makes it impossible for U.S. producers and workers to compete on a level playing field. Additionally, China’s devaluation of its currency exacerbates the already staggering U.S.-China trade deficit and threatens the stability of the global financial system.

“China has been undervaluing its currency for years, and we cannot afford to wait any longer to address this problem. In this time of economic difficulty, we must do everything we can to promote and protect U.S. jobs and workers. The Obama Administration must identify China as a currency manipulator and use all available authority and resources to end this unfair trade practice without delay.”

The Jobs Agenda: Step One Is China

Scott Paul — Thu, 01 Apr 2010 10:18:18 -0400

America is in the post-health care reform political environment now. The top-of-mind concern for voters of all political stripes is still the economy. Underpinning this concern is a real sense of fear and uncertainty about our nation’s future: where our children will find jobs, how we will pay off our public and private debt, and what external threats we will face in the years to come.

Our anxiety only increases when Washington still turns a blind eye to the most glaring problems. So, where should we start? No doubt Congress and the Administration will continue to roll out efforts to strengthen education, invest in infrastructure, and tinker with the tax code. But all of these efforts will get overwhelmed unless we break the grip that Wall Street still has over our international economic policies. These policies have led to a massive trade deficit, turbocharged outsourcing, and a dangerous codependency with China: we provide the rich consumers; China provides the cheap goods made possible by state control and massive subsidies, along with the financing.

Here’s the cost:

- 2.4 million jobs lost to China, not only from the Industrial Heartland, but also from the hi-tech corridors of California, New England, and Texas.

- A reduction in industrial capacity: even during the Great Depression, the U.S. managed a slight increase in industrial production. Not this time.

- A rich and sad irony: many American consumers—concerned about quality and pride—unable to find American products on the shelves of stores.

- A quandary for America in the developing world noted by Harold Meyerson: instead of emulating the sometimes dysfunctional democracy of the U.S., more developing nations like what they see in China’s mix of mercantilism and authoritarianism.

The tech bubble burst a decade ago. The housing bubble burst in 2008. Soon, the trade bubble will burst.

Last spring, President Obama spoke eloquently about the need to “rebalance” the American economy, to produce more and consume less. He’s absolutely right, but what does this mean? In all honesty, an economic rebalancing will have a much larger impact on our nation than health care reform ever will. If the Administration is serious about this rebalancing—and I hope that it is—the job of explaining how it can be accomplished and who it will benefit must begin right away.

If the rebalancing is to start anywhere, it must start with being honest about our flawed economic relationship with China. The Administration has the unique and extraordinary opportunity to do this within the next 15 days.

Outside of domestic policy, the role China plays in our economy will be the biggest determining factor in how robust our job market is, and how large our middle class will be, for years to come. Why? First, China will become the world’s largest economy someday, even if it is only fractionally as productive as the U.S., because of its sheer size. Second, China practices a potent blend of mercantilist economic policies and repressive political policies that are effective in the short term in promoting stability and economic growth, but detrimental to the rule of law, wages in the developing world, and the economies of industrial competitors like the U.S. Third, China has already displaced 2.4 million jobs in the U.S., most in manufacturing and technology. Those are jobs we do not want to lose because the jobs—if any—that replace them pay lower wages and simply do not offer the same value added for the economy.

April must be Obama’s month to do something about China. As a candidate, the President said we should trade with China, but fairly. It was a perfectly reasonable position, and one I happen to agree with. He also said President Bush had not been tough enough with China, a statement with which I also agree. As President, he’s made a few key decisions—such as imposing duties on Chinese tires that were flooding the American market—that put teeth into his promises. But he’s yet to do the most meaningful and difficult thing that he promised to do back in 2008: insist that China revalue its currency.

This debate will play out in full spectacle over the next two weeks, because Obama’s Treasury Department has an April 15th deadline to file a semi-annual report on foreign exchange rates. It’s an opportunity to designate China as a “currency manipulator,” which would trigger serious negotiations. Every honest economist who has looked at China’s exchange rate agrees that China manipulates its currency. (Those economists who don’t agree either work for Beijing, reside in a parallel universe, or believe that credit default swaps were a wonderful thing for our economy.)

Economists such as Paul Krugman, Fred Bergsten, and Robert Scott have capably dismissed the “sky will fall” myths about getting tough on China’s currency. Taking on China will not start a trade war, dramatically increase consumer prices, or permanently spook the bond market. Instead, it will increase U.S. employment (by anywhere from 700,000 to 2 million jobs), boost U.S. exports, and rebalance the economy. And, I might add, at no cost to taxpayers. Let the rebalancing begin.