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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.

In Trade, Too Often, the Victim is Blamed

8:01 am in Uncategorized by Leo W. Gerard

A screwy thing happened after the United Steelworkers and eight domestic steel producers won their trade case late in December against Chinese manufacturers of the steel pipe used for oil and gas drilling.

Instead of describing it as an important victory for U.S. industry and workers, one in which they proved to the U.S. International Trade Commission (ITC) that China violated international trade rules, the media characterized it as Americans unnecessarily picking a fight with the Chinese.

What else is new? It’s exactly what happened in September when the United Steelworkers won tariffs in a trade case regarding imported Chinese tires.

What’s particularly disturbing about this stance from the media is that it occurs only when a trade case involves manufactured goods. The media strongly supports protections for copyrighted material – movies, music etc. The media have made clear they oppose Chinese piracy of intellectual property – you know, like the written and filmed products that media members produce.

But their reaction is completely different when the Chinese violate international rules regarding manufactured goods. Then, the media blame the victims — the U.S. industries and workers – the same way defense attorneys accuse rape victims.

Here, for example, is the Washington Post contending that the ITC decision to impose duties of between 10.4 and 15.8 percent on Chinese pipe heightened trade hostilities between the U.S. and China:

“The current tensions began in September, when the United States imposed a staggering 35 percent import fee on tires from China.”

The Dow Jones Newswire in a story by Henry J. Pulizzi also charged the U.S. with provoking the Chinese by imposing duties, beginning with a reference to the steel pipe decision:

“The ruling adds more tension to the U.S.-China trade relationship. Ties between Washington and Beijing are already frayed by the Obama administration’s imposition of duties on Chinese tire imports and China’s criticism of U.S. moves as protectionist.”

These reporters act like the decisions themselves initiated animosity between the U.S. and China over trade. That completely disregards how the process starts – with China violating international trade rules it had agreed to obey in ways that cause U.S. businesses to collapse, factories to close, thousands of U.S. paper workers, tire workers, steelworkers and others to lose their jobs, and their communities to suffer.

We could sit back and just take it and allow U.S. industries to die, one after another, while China keeps its citizens employed by providing subsidies and supports forbidden under international law to its industries and then selling the goods in the U.S. at prices below production costs.

But that doesn’t sit well with most Americans. They believe their country should enforce trade rules. That is what U.S. industry and unions are demanding. That is what occurred in the tire and steel cases. That is what the United Steelworkers and paper manufacturers are seeking in a trade case to be heard later this year.

Demanding adherence to the rules isn’t protectionism. And the media need to stop saying it is. Here’s how Dan DiMicco, chief executive officer of Nucor, the nation’s second largest steelmaker, explained it, “It is not protectionism when countries are held accountable for the agreements and obligations they freely entered into to have access to the USA and world’s markets.”

In addition to falsely making this a protectionist fight, the media wrongly contend the tariffs were political. Dow Jones, for example, tried to make the unanimous ITC decision in the steel case political, writing:

“The ITC is an independent federal agency tasked with investigating the impact of alleged ‘dumping’ of foreign products on U.S. industries. While its six commissioners are split evenly between Republicans and Democrats, the decision fits with the Obama administration’s push to address U.S. manufacturers’ concerns about Chinese competition.”

Dow Jones implies here that somehow Obama managed to strong-arm all three Republican ITC members to vote his way in this case. None of the stories suggesting politics were involved in the tariff decisions note that Republican Sen. Richard Shelby of Alabama and nine Republican Congressmen joined dozens of Democrats in signing letters to the ITC supporting the duties.

Nobel Prize-winning economist Paul Krugman has written that failure to enforce trade laws and compel China to stop manipulating its currency could cost the U.S. 1.4 million jobs over the next couple of years. He describes China’s behavior as mercantilist – supporting industry for export of goods to maintain high employment and trade surpluses.

He quoted economist Paul Samuelson:

“With employment less than full. . . all the debunked mercantilist arguments” – that is, claims that nations who subsidize their exports effectively steal jobs from other countries – “turn out to be valid.”

That is what China is doing to the U.S. – stealing jobs.

The U.S. doesn’t have to let it happen. America can enforce international trade laws. It works. Shortly after President Obama imposed the tire tariffs, Cooper Tire & Rubber Co. announced plans to add capacity to its Findlay, Ohio plant and hire up to 100 workers. Other U.S. tire plants began recalling laid off workers.

American manufacturers, workers and communities are the victims of unfairly traded Chinese exports. They’re fed up with the media blaming them when all they’re asking for is justice.