You are browsing the archive for currency manipulation.

The Week of Walking Backwards

7:26 am in Uncategorized by Leo W. Gerard

It's not only Michael Jackson that can dance backwards. (Photo: typoyock on flickr)

It's not only Michael Jackson that can dance backwards. (Photo: typoyock on flickr)


As the Occupy Wall Street movement spread across the nation last week, politicians in D.C. flipped the bird at protesters – including those camping in Washington’s McPherson Square.

Here’s how: While occupiers sought political focus on the unemployment, impoverishment and foreclosures suffered by the nation’s non-rich 99 percent, politicians considered three major pieces of legislation and passed only the one that will help the wealthiest 1 percent and hurt the remaining 99 percent.

Senate Republicans murdered-by-filibuster the American Jobs Act, which would surtax the 1 percent to provide jobs for the 99 percent. The Senate did pass the currency manipulation bill, but House GOP leaders refused to schedule a vote on the measure that would protect jobs for the 99 percent by punishing countries that undervalue their currencies to artificially lower prices on their exports.

By contrast, both houses of Congress adopted the so-called Free Trade Agreements with Panama, Colombia and Korea, which will, just like their predecessor NAFTA, destroy jobs held by the 99 percent.

It’s incredible. Inexplicable. Inexcusable. In a country where joblessness is a painful 9.1 percent. Where one in five children lives in poverty. Where foreclosures rose again last month. Where a whole movement is growing to protest the appeasement of the rich at the cost of the middle class. In that place, Congress chose to walk backwards. It didn’t take two steps forward – which it could have by passing the currency bill and jobs act. No. It just took a giant step backward by embracing job-killing trade agreements.

It all forces the 99 percent to demand even more loudly: Where’s the jobs? Read the rest of this entry →

Seeking a Trade Rule Enforcer

8:38 am in Uncategorized by Leo W. Gerard

"10 Yuan Note" by upton on flickr

"10 Yuan Note" by upton on flickr

America is being played.

The U.S. allowed China to join the club of trading partners in the World Trade Organization (WTO) in 2001 under the condition that China observe club rules.

Over the past decade, however, China has profited immeasurably by ignoring, flouting and circumventing the rules barring market-distorting practices. Among the most destructive of these violations is China’s deliberate undervaluing of its currency, which makes Chinese exports to the United States artificially cheap and U.S. exports to China artificially expensive.

This nurtures Chinese industry and poisons American manufacturing.

In the trade contest with China, the referees have been absent or silent or completely craven on the issue of currency undervaluation, even as it kills U.S. factories and jobs. American workers need a trade rule enforcer. With unemployment above 9 percent, the situation is desperate. American workers can’t be played anymore.

Just last week, the Economic Policy Institute (EPI), a non-partisan think tank, issued a report showing that the trade deficit with China cost the United States 2.8 million jobs since the WTO allowed China into the trading club. Every congressional district in the U.S. lost jobs as Chinese exports to the United States overwhelmed U.S. exports to China.

The trade deficit is the difference between the value of Chinese exports to the United States and U.S. exports to China. It was $84 billion the year China entered the WTO. Last year it grew to $278 billion – a 230 percent increase. Read the rest of this entry →

The Voters’ Message: Manufacturing a Solution

8:45 am in Business, Economy, Employment, Labor, Manufacturing by Leo W. Gerard

No doubt voters sent a message last Tuesday. Deciphering it correctly is crucial.

Republican cryptographers interpreted the election results that gave the GOP control of one house of Congress as a directive to demolish everything produced over the past two years – health care reform, Wall Street re-regulation and economic stimulus. In fact, like the Blues Brothers, they believe they’re on a mission from God. Unlike Jake and Ellwood who set out to save an institution, Republicans intend to crush the President, and if a crippled leader means the nation suffers, well, too bad.

Republicans got it wrong. The electorate wants construction, not destruction. Voters want cooperation, not gridlock.

President Obama properly decoded the message and reached across the aisle, inviting Republicans to a White House summit. At that meeting, he will attempt to collaborate with politicians bent on his annihilation, which is like trying to navigate a mine field. But in these negotiations, there is a safe zone. That is manufacturing. The electorate wants American manufacturing restored to greatness. Voters know industrial revitalization would create good, middle class jobs, strengthen national security and improve the economy.

Some Republicans already have shown a willingness to cooperate on this issue. Just before the midterm recess, 99 Republicans voted with Democrats to pass by 348 to 79 the Currency Reform for Fair Trade Act, which would enable the Commerce Department to impose import tariffs to offset the detrimental effects of manipulated currencies. This is vital in places like Ohio, Michigan and Pennsylvania where manufacturing has been decimated by Chinese exports sold at artificially low prices. Products from several Asian countries are falsely cheap because the governments intervene in the market to suppress the value of their currencies against the dollar.

Voters know that punishing currency manipulators, dealing boldly with violations of international trade rules like forced technology transfer and copyright abuse, and ending tax incentives to outsource jobs would help reverse the decline of American manufacturing.  . . . Read the rest of this entry →

To Counter Currency Manipulation: Rally Some Allies

8:09 am in Uncategorized by Leo W. Gerard

Japan, no economic small fry, challenged China last month. The conclusion of the dispute is a cautionary tale for countries confronting China about currency manipulation.

In September, Japan seized a Chinese trawler captain after his boat collided with two Japanese Coast Guard ships near some East China Sea islands claimed by both countries.

Immediately afterward, China “coincidentally” detained four Japanese employees of Fujita Corp., charging them with filming in a restricted military area. When Japan proposed a prisoner swap, China upped the ante instead — halting shipments of rare earth minerals to Japan. China controls 93 percent of the world’s rare earths, which are minerals essential for manufacturing high-tech and energy-efficient products, from cell phones to wind turbines.

Japan caved, releasing the Chinese captain unconditionally. Suddenly, China rescinded its restriction on rare earth exports to Japan and released three of the four imprisoned Japanese nationals, ending the dispute one captive ahead of Japan.

This incident confirmed China as a burly international tyrant. The caution for countries attempting to negotiate with China is to avoid Japan’s mistake, which was single-handedly contesting the giant. For America, that means seeking an end to China’s currency manipulation by simultaneously pursuing every option the United States has, including formally naming China a currency manipulator, imposing tariffs on imports from countries that undervalue currency and creating a community of allies to campaign together to combat the illegal trade practice.

Rallying partners should be reasonably easy, as Japan, Brazil and the European Union all have exhorted China in recent weeks to allow the value of its currency to freely float on international markets.

Like the United States, each has acted unilaterally. Last week, EU finance ministers confronted Chinese Premier Wen Jiabao at a European-Asian economic summit in Brussels. Wen rejected their demands for China to speed appreciation of the yuan in relationship to the euro.

Also last week, Brazil doubled a tax it charges foreigners who purchase Brazilian bonds. This was an attempt to slow speculation that has increased the value of its currency, the real, by 39 percent against the dollar over the past 22 months.

A day later, Japan announced it would lower its benchmark interest rate and purchase $60 billion in government bonds and securities, both actions designed to lower the value of the yen, which would cheapen its exports.

The Swiss tried intervening in the market in 2009 to hold down the value of its currency, the franc, but failed. Singapore, Thailand, India and Canada have considered it.

So far, America has just attempted to persuade China to stop undervaluing the yuan – a practice that artificially suppresses the price of Chinese exports while at the same time artificially raising the price of imports into China from America and other nations. China’s deliberate currency undervaluation accounts for a significant part of America’s massive trade deficit with China.

Last spring, the United States asked China politely to allow the value of its currency to float up. As the United States awaited China’s answer, the U.S. Treasury delayed issuing its semi-annual foreign exchange report in which it could name China as a currency manipulator, then initiate a formal response.

China replied June 19 that it would allow the yuan to float on international currency markets. Treasury then released its report – which, no surprise, failed to list China as a currency manipulator. Since China’s announcement, the yuan has increased in value less than two percent – this for a currency believed by many economists, including the conservative C. Fred Bergsten, director of the Peterson Institute for International Economics, to be undervalued between 25 and 40 percent.

Annoyed with China’s failure to keep its pledge and angry over unfair trade gutting 2 million jobs from the body of the American economy over the past decade, Congress reacted just before its recess. With massive bi-partisan support, the House passed a bill that would allow the Commerce Department to impose tariffs on imports to counter the effects of currency manipulation. If passed by the Senate and signed by President Obama, it would expand the definition of improper government subsidies to include manipulation of currency to gain trade advantages.

Afterward, just nine days before the next Treasury report on currency manipulation is due on Oct. 15, Treasury Secretary Timothy Geithner, in a speech at the Brookings Institution, offered thinly veiled criticism of China’s persistent manipulation:

“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same. . . This sets off a dangerous dynamic.”

In rebuffing the European Union’s request for revaluing, the Chinese prime minister claimed allowing the yuan to appreciate too quickly would bankrupt Chinese factories as their prices rose to uncompetitive levels, and the resulting exodus of unemployed workers to the countryside would provoke social unrest.

No one wants that. Workers everywhere applaud the rise of millions of Chinese citizens out of abject poverty. But increasing the value of the yuan will benefit Chinese workers at the same time as it begins to balance currencies worldwide. An appreciated yuan effectively increases Chinese workers’ wages.

By deliberately undervaluing its currency, the government of China is waging a stealth trade war against the rest of the world. Independently, the United States must protect its economy, but to reign in this international outlaw, America also must secure the help of a posse.

China’s Currency Manipulation: Flipping Off America

8:57 am in Uncategorized by Leo W. Gerard

China is disrespecting America.

The Asian giant is an international trade outlaw, and U.S. manufacturers and workers are its crime victims.

China illegally subsidizes its export industries and unlawfully manipulates its currency. That kills U.S. industry and destroys U.S. jobs. Earlier this year, the Obama administration asked China nicely to allow its currency value to float up naturally on international markets. On June 19, China said it would.

And then it didn’t.

That’s flipping the bird at America.

Before China’s June 19 promise, bipartisan groups of lawmakers in the U.S. House and Senate proposed legislation that would force the U.S. Treasury Department to even the score and to call China out for what it is: a currency manipulator. Hearings on the bills are being conducted this week.

Pass the legislation. It’s time for America to flip the bird back.  . . . Read the rest of this entry →

We are No. 2; We are No. 2!

9:00 am in Uncategorized by Leo W. Gerard

For 110 years America has reigned as the world’s number one manufacturing nation. Next year, China is expected to wrest that title from the United States.

Last year, the U.S. manufactured $1.7 trillion worth of goods; China fell second at $1.6 trillion. Next year, China is expected to edge out America with production worth $1.87 trillion.

America will be Number 2. And unlike the Dutch at the world cup, America is losing the crown it held for a century, not seeking a first-time anointment.

It doesn’t have to be this way. China’s manufacturing sector is using the equivalent of steroids to attain the title. It deliberately devalues its currency, an outlawed practice on international markets. Devaluation means China’s exports are artificially cheap in the U.S. and American exports to China are falsely expensive. It’s no puny sum either. The discount for Chinese products sold in America is as much as 40 percent. – 40 cents on the dollar.

Allowing China to devalue its currency devalues American workers and businesses. Chinese currency manipulation is driving American manufacturers out of business and America workers into unemployment. For 110 years, American factories and workers have proved they can compete and win against all comers in the world. They can continue to do that if Congress places tariffs on Chinese exports to the U.S. or taxes them to compensate for the 40 percent price break the Chinese government arranges for its manufacturers.

Inaction means the U.S. government disrespects American workers and manufacturing in a way that the Chinese government does not. China deliberately manipulated its currency value to protect and preserve Chinese manufacturing jobs as the worldwide recession deepened in 2008.

Read the rest of this entry →

U.S. Politicians Deny the Obvious Injury; U.S. Manufacturing Bleeds

9:51 am in Uncategorized by Leo W. Gerard

In the film, “Monte Python and the Holy Grail,” King Arthur severs both of the Black Knight’s arms during a sword fight, but the Black Knight attempts to battle on.

The king admonishes him: “You’ve got no arms left.”

The knight refutes that: “Yes I have.”

“Look,” at the obvious, the king tells him.

“Just a flesh wound,” retorts the knight, who clearly is suffering a state of denial.

Similarly, in the trade clash between China and America, the Asian giant has gravely wounded the United States. China knows it. U.S. voters of all political stripes know it. But too many American politicians, like the Black Knight, are in denial.

Their deliberate blindness, and resulting inaction, has enabled China to continue devaluing its currency, the Renminbi, against the dollar, a practice that makes its exports artificially cheap in U.S. markets and U.S. exports to China wrongfully overpriced. China announced just before the G-20 summit in Toronto that it would allow the value of the Renminbi to float up on world markets – and then permitted the currency that is undervalued by as much as 40 percent against the dollar to rise an underwhelming one half of one percent.

Political inaction also has facilitated China’s flouting of international trade rules forbidding government subsidies to manufacturers. The Chinese subsidies result in falsely low-priced Chinese goods flooding U.S. markets and submerging U.S. manufacturers.

Main Street Americans see the obvious. They said so in a poll conducted late in April by The Mellman Group for the Alliance for American Manufacturing (AAM). The likely voters – who identified themselves as Republican, Democrat, Tea Party and Independent – said Washington must focus on manufacturing because it is crucial to America’s economic strength. Large majorities said the U.S. should strengthen domestic manufacturing and develop a national manufacturing policy.

Unfortunately, too many politicians who loll in the rarefied world of Washington, D.C. — so far from Main Street, so very far from an actual factory — don’t see it. So they’ve failed to solve the problems.

A report issued this week by the Economic Policy Institute (EPI) details the trade difficulties encountered by one American industry – paper manufacturers. Its struggles mirror those that have maimed many other U.S. manufacturers, including pipe mills and tire plants.

The report, “No Paper Tiger: Subsidies to China’s Paper Industry from 2002-09,” notes that in 2008, China overtook the United States to become the world’s largest producer of paper and paper products. This score by China is the solid evidence for the gut feeling Americans expressed in the Mellman poll for AAM. A significant majority told the pollsters they believed the U.S. had lost to China the position of world’s strongest economy.

Americans didn’t need a report to spell out for them what their families and neighborhoods had suffered over the past decade. They’d experienced the closing of more than 10 percent of U.S. manufacturing plants in their communities from 2001 to 2009 – a loss of 42,404 factories. In the paper industry alone, 159,000 of their relatives and neighbors lost their jobs as paper mills closed or cut production during the seven-year period covered by the “No Paper Tiger” study.

A woman from Los Angeles told the Mellman pollsters that this relentless loss of manufacturing capability enfeebles America: “When you consume more than you produce, you become dependent, and we are consuming more from other countries than producing our own. . .truly we have become weak and in order to strengthen the economy, I think we need to produce more.”

The U.S. will, however, continue to produce less, the “No Paper Tiger” report makes clear, if Washington doesn’t act against predators violating international regulations. The report explains that China’s government granted at least $33 billion in subsidies to paper manufacturers to accomplish the country’s rapid rise to global leader in paper production.

In its central government-controlled economy, China gives paper companies money and breaks, much of which is improper under international trade regulations. For example, some paper companies get “loans” that they don’t have to repay. The government provides tax breaks, artificially low-priced electricity and underpriced raw materials. This explains how Chinese paper companies increased capacity by an average of 26 percent every year since 2004 even as prices for paper fell internationally and costs for raw materials for paper production in China rose steeply.

China’s rule-violating subsidies and deliberate currency devaluation explain the low price of Chinese paper. Labor costs don’t account for it. That’s because labor is such a tiny percentage of the price of paper – in both the U.S. and China. In China, it’s 4 percent of production cost; in the U.S. it’s 8 percent.

By contrast, Chinese paper manufacturers confront expensive problems that the American industry does not. In China, obtaining raw materials for paper making is complicated and costly because the country has among the smallest forestry resources in the world per capita. In addition, the “No Paper Tiger” report says, the Chinese industry is relatively inefficient. In the U.S., the paper industry is highly efficient and has easy access to abundant natural resources.

The U.S., a market economy, simply does not routinely prop up manufacturers the way China does.

The “No Paper Tiger” report says that if nothing changes, U.S. paper manufacturers will continue to lose money, close mills and bleed jobs. The U.S. could be reduced to serving as nothing more than the supplier of raw materials for Chinese paper production, as if America were an undeveloped third world country incapable of manufacturing on its own.

China’s subsidization of its paper manufacturers isn’t unique. It supports many of its industries. Chinese government intervention in the market accounts for a significant portion of the manufacturing loss in America. That loss diminishes American security.

America is losing her arms. Denying it doesn’t help.

End the Denial; Label China a Currency Manipulator

6:10 pm in Uncategorized by Leo W. Gerard

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.