End the denial; label China a currency manipulator

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.”