I’m reluctant to write a second consecutive column about China, its policies and the types of problems it creates for the rest of us, but…
Quite a few folks, including many in the manufacturing community and the finishing industry in particular, are convinced that U.S. efforts to persuade China to be a responsible player in the international community have failed.
This is especially true when it comes to the country’s monetary policies, which revolve around purposely undervaluing its currency—the yuan—by anywhere from 20-40%to subsidize its exports to the U.S. and elsewhere. According to some, China’s currency policy is at the root of the U.S. trade deficit, outsourcing/offshoring of jobs and other issues of vital importance to U.S. manufacturers.
A purposefully undervalued yuan and substantial export subsidies allow China to maintain a trade surplus equal to 8% of its GDP. The huge surplus, mostly with the U.S., permits China’s economy to grow at more than 10% annually.
Even worse, says Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission, China’s stance compels other Asian countries to follow similar strategies to avoid losing their remaining U.S. market opportunities to China. The result in the U.S. is $250 billion annually in lost productivity and 2 million high-paying manufacturing jobs, according to Morici.
The U.S. and China have been talking about this issue for years, and the latest round of bilateral talks seem to have failed once again to persuade China to alter its mercantilist economic policies. Now some diplomats have suggested engaging China in multilateral talks along the lines of the G-8 meetings of leaders of large industrialized countries to resolve currency and trade issues. Morici says such proposals have little chance of succeeding because China’s leaders simply do not share the same outlook and values as the leaders of large Western democracies.
But it seems even the U.S. government has finally realized the futility of continuing to talk about the issue of trade with China, either one-on-one or multilaterally. The Commerce Department and the U.S. trade representative have recently taken a more confrontational approach to gaining market access for American goods in China and preventing dumping of goods in this country. And, under prodding from the Bush Administration, the Chinese have allowed the yuan to appreciate 9.4% since mid-2005.
Now Congress is getting in on the action. Legislation giving U.S. companies new tools to fight China’s currency and trade practices is working its way through Congress and is headed toward approval in the House of Representatives, one of the sponsors of the bill told a recent teleconference of NASF members.
Rep. Duncan Hunter (R-CA) believes a bill will pass the House, and that it will have a lot in common with legislation he’s sponsoring with Rep. Tim Ryan (D-OH). Co-sponsored by 175 House members, the Hunter-Ryan bill would allow U.S. companies to ask the Commerce Department to impose duties on China for currency manipulation. The current version also includes new provisions that would give companies an additional option in seeking duties on Chinese goods.
The revamped bill is said to be the toughest of four competing pieces of legislation currently in Congress. Another bill in the House would require the Commerce Department to impose countervailing duties against non-market economies like China, and also require congressional approval before the Commerce Department could lift China’s non-market economy status under U.S. trade law. In the Senate, leaders of the both the Finance and Banking Committees have also introduced bills aimed at addressing concerns about China’s currency practices.
If any of the bills reaches the president’s desk, it may be signed or it may be used by the administration to leverage more currency concessions out of the Chinese, Hunter says. At the very least, the debates in Congress are raising awareness of an issue that has been a sore spot for many in the finishing industry for some time.
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