Since China joined the World Trade Organization (WTO) our country's balance of trade has gotten worse and worse and we have lost jobs and jobs (and money and money). Between 2001 and 2008 we lost 2.4 million jobs just to China. Normally a situation like this balances out because China's currency would rise, making goods made here competitive and helping China's workers be able to buy things we make. So we would benefit from the gains they make. That's why trade can be a win-win when parties play fair.
But China isn't playing fair. They manipulate their currency, "pegging" it to the dollar, so goods made there continue to have a lower price in world markets. Some say that they have a 40% pricing advantage just from the currency manipulation. And after that you can take into account the many other ways that China is cheating on trade. So we have a huge problem and a huge imbalance, both growing to extremes.
Japan got tired of waiting for China to stop cheating. Financial Times: Japan intervenes to weaken yen,
Tokyo intervened in the currency markets for the first time in more than six years to weaken the yen, sending it nearly Y3 lower against the dollar to mitigate the threat its strength posed to Japan’s export-reliant economy.
Note that this means we now have both China and Japan weakening their currencies against ours, giving both pricing advantages against our goods, which will add to the pressures on us.
Congress is looking into China's currency manipulation with hearings beginning today, and may act soon. The Hill: Punishing China becomes issue for Democrats in midterm election,
Ryan’s bill would allow the Commerce Department to consider currency manipulation in calculating countervailing and antidumping duties on any imports from countries manipulating their currencies to lower the cost of their exports. ... Many rank-and-file Democrats are frustrated with China, which promised in June to allow its currency to follow market trends. Since that announcement, China’s currency has increased by less than 1 percent.
Action by Congress would be politically popular. Harold Meyerson writes in the Wash. Post about this today, in Time to stand up to China on trade
There's little dispute that the Chinese government controls such strategic industries as alternative energy and that it subsidizes that industry massively, in clear violation of WTO rules. Politically, the American public plainly supports policies that boost American industry and curtail offshoring. A Heartland Monitor poll, sponsored by Allstate Insurance and the National Journal, released last week, asked Americans to choose one of three options for how America should deal with the global economy. Thirty-six percent backed a program that instituted tariffs on imports and penalized companies for offshoring jobs. Thirty-two percent supported governmental programs to help strategic domestic industries. Just 23 percent backed a laissez-faire free-trade policy.
Business groups representing the huge multinationals are fighting on China's side on this. Reuters, US groups urge Congress not pass China currency bill,
Thirty-six U.S. farm and business groups urged Congress on Tuesday not to pass legislation threatening China with duties on some of its goods if Beijing does not revalue its currency.
Consider what this says about contemporary American capitalism. American big business is now so inextricably invested in China that it won't defend or promote American-based manufacturing. Those tasks have fallen to our largest manufacturing union. By any dispassionate measure, it's our labor movement, not our leading businesses, that deserves the term "American."
If China would play by the rules, this would balance itself and turn into a win-win. If the administration would insist that China plays by the rules, backed up with a strong tariff if they don't, China would likely start coming around. And if nothing else works, a strong tariff on Chinese goods is needed. It is time for Congress to act.