G-20 Standing Up To China, Now It’s Your Turn

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
As the manufacturing infrastructure of suppliers, technology knowledge, etc., moves to China, dependence follows. China appears to be ready to answer, “So what are you going to do about it?”
The world is starting to realize this. Financial Times, yesterday, China reprimanded by G20 leaders

Five prominent members of the Group of 20 leading economies, including the US and UK, sent a coded rebuke to China on Tuesday against backsliding on economic agreements.
In a letter to the rest of the G20 that shows frustration at slow progress this year, the leaders warned: “Without co-operative action to make the necessary adjustments to achieve [strong and sustainable growth], the risk of future crises and low growth remain.”

Reuters says,

The letter was signed by U.S. President Barack Obama, Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy, South Korean President Lee Myung-bak and UK Prime Minister Gordon Brown.

Meanwhile Business Week looks at China, in China: Closing for Business? (turn your sound off before clicking)

Nearly a decade after China’s entry into the World Trade Organization, many foreign companies say the warm reception they once received has turned frosty. … A new government procurement program known as “indigenous innovation” features rules favoring local firms: It could block sales worth billions of dollars a year. … Beijing has written strict standards for everything from cell phones to cars, often couching them in a way that gives an advantage to domestic producers.

Summary, China used the promise of access to its huge market to grab control of much of the world’s manufacturing. “You want to sell to us, you have to build your factories here.” Now that they have it they are no longer as interested in sharing. And while they subsidize manufacturing in various ways – including currency manipulation – to lure companies to move factories and jobs to China, they are not letting those companies sell inside China. So the huge trade imbalance continues to grow.
China pursued an effective industrial policy. Meanwhile, we don’t even have one.
What are we going to do about that?
Here is something you can do today: Click here to tell Washington: Tell the truth. China is manipulating its currency and playing by its own set of rules.

The Treasury Department must report twice a year which countries are practicing unfair trade by artificially lowering the value of their currencies, making their imports cheaper and our exports pricier.
The next Treasury report on currency manipulation comes on April 15. The Chinese government is spending an unprecedented $30 billion a month buying dollars and selling yuan to keep its currency low and its exports cheap.
Yet regardless of who is in charge of the White House, the US has yet to follow the law and state the truth.

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Direct Twitter share link (click on this, don’t copy it): http://bit.ly/dAKD4P
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And then, after you have done these, demand that our government formulate and follow a national industrial policy so we can start bringing the jobs back home.
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Chinese Currency Manipulation Is Just One Piece

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
I’ve been focusing on the Chinese currency manipulation problem because the Obama administration is supposed to make it’s twice-a-year declaration on this on April 15. But even if this problem is addressed as it needs to be, keep in mind that it is just one piece of the larger problem of Chinese trade policies.
In a post the other day I listed the main unfair advantages China uses to its advantage:
1) Currency manipulation. China “pegs” its currency at a very low, or “weak” rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.
It is necessary to bring their currency to market rates, but this is not all that must be done to bring trade into balance. It helps, it doesn’t fix it.
All of these things that China is doing are collectively called a national industrial policy. China has one. We don’t. China’s share of the world’s business has grown exponentially because they have and follow a national industrial policy. Ours has declined dramatically because we don’t. I’m trying to drop a hint here, but for those in Washington who aren’t following let me spell it out more clearly: America needs to develop and follow a national industrial policy.
One more thing, Senators Graham and Schumer have introduced a bill, S. 295, that will “level the playing field” with China.

Specifically, the amendment allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States – a penalty that corresponds to their estimated currency advantage.

It’s time to call the President and your member of Congress, and tell them to let the Treasury Department know that they need to declare China a currency manipulator. And ask them to support the Graham-Schumer bill.
When you call, you can use info from this report by The Alliance for American Manufacturing and Economic Policy Institute titled, “Unfair China Trade Costs Local Jobs.” Accompanying the report is a website with an interactive map that shows job losses to by state and Congressional District:

AAM_Map

Click the map.

Also, look at CAF’s breakout page on the China trade problem: On Jobs, China Has Us In The Red
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Even Chinese Officials Understand — Their Currency Must Rise

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
When a policy is just wrong it’s just wrong. I have written about how Chinese CEOs and Chinese economists have been making the case for China to bring its currency up to market rates.
Even Chinese government officials are making the case for a stronger currency. In a must-read NY Times story, China Officials Wrestle Publicly Over Currency,

The current drama began on March 6 when the governor of China’s central bank stunned analysts by saying that the bank’s policy of keeping the renminbi at a constant exchange rate against the dollar was a “special” response to the global financial crisis.
The new description suggested to many economists that the current value of the renminbi was temporary and that the central banker, Zhou Xiaochuan, was preparing the Chinese public for a stronger renminbi.

Why is all of this discussion about Chinese currency coming to a head now?

The debate is far from academic. In the coming weeks, the Obama administration faces a series of politically charged deadlines set by Congress to decide whether to continue negotiating with China over currency and trade issues or to take a more confrontational stance and name China a currency manipulator.
If the administration labels China a currency manipulator, it would face further Congressional pressure to impose punitive tariffs on many Chinese goods.

Please read the entire NY Time story for its explanation of some of China’s internal tensions over the currency-rate problem. The Commerce Ministry is close to exporters who have been enjoying this manipulated advantage, and fights for their interests. The central bank has accumulated a vast store of foreign currency and would be blamed for the value drop of this pile of foreign cash as their own currency gets stronger. But the pile also means that the central bank cannot easily raise interest rates to fight rising inflation. Because of this inflation companies are starting to import and stockpile commodities. Etc. It’s a tense mess with the highest of stakes. (Yes, I feel the excitement of a thriller when I read about economics. My wife rolls her eyes.)
The Chinese government is trying to just manage all of these market forces instead of letting them operate as markets. The resulting imbalances are causing tremendous pressures – and bubbles – to build up both inside and outside of China. If China won’t resolve this as the danger to the world’s economy grows, the rest of the world must step in. On April 15 President Obama has an opportunity to start restoring balance to the world’s economy by declaring China a currency manipulator and taking steps designed to force them into balance with the rest of the world. Think of it as an intervention for their own good.
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Pressure Rises For China Currency Fix — Yesterday Chinese CEOs, Today Chinese Economists

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Yesterday I wrote about Chinese CEOs calling for China to bring its currency up to market rates. Today Chinese economists are joining the call.
Chinese economist Gong Shengli, in his book, China is Very Happy, calls for a strong yuan,

“In order for China to survive and to continue developing, it is imperative that the renminbi goes global,” says Mr Gong. “That means it is absolutely necessary and inevitable that the currency should appreciate.”

From the Financial Times story,

A small but prominent group of economists at the Chinese Academy of Social Sciences has been pushing in recent months for a sizeable appreciation of the currency. In an article published this year, Zhang Bin called for a 10 per cent rise and greater flexibility in daily trading limits in order to give the authorities more control over monetary policy and to restrain inflation.
“There is a very urgent need” for reform of the currency system, he wrote.
Zhang Shuguang, another Cass researcher, said a stronger currency was needed to boost China’s services sector and reduce the emphasis on exports.

The fact is that this currency imbalance distorts everything in the world economy. Chinese consumers face a barrier of up to 40% keeping them from being able to buy goods produced outside of China. Chinese businesses face the same problem. Meanwhile the rest of the world continues to lose jobs, factories and purchasing power.
On April 15 the President must declare China a currency manipulator and take the necessary steps to being to remedy the problem.
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Find Out How MANY Jobs Have Been Lost To China Where YOU Live

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Everyone knows that we have lost a lot of jobs to China since 2001. Now you can find out exactly how many, and where.
The Alliance for American Manufacturing and Economic Policy Institute released a report today titled, “Unfair China Trade Costs Local Jobs” by EPI’s Robert Scott. Along with the report AAM has set up a website with an interactive map that shows job losses to by state and Congressional District.

AAM_Map

Click the map.

It’s bad. According to the report, between 2001 and 2008, 2.4 million jobs were lost or displaced with losses occurring in every Congressional district. (Note – This report does not track service industry job losses, and does not track indirect job losses.)
Here’s the surprise: since 2001 we have lost more tech jobs than manufacturing jobs! — We lost 628,000 tech jobs -26 percent of all jobs displaced by trade- between 2001 and 2008.
The main unfair advantages China uses to its advantage are:
1) Currency manipulation. China “pegs” its currency at a very low, or “weak” rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.
I joined a press conference call announcing this report, with Senators Charles Shumer (D-NY) and Lindsey Graham (R-SC).
Senators Schumer and Graham are introducing legislation in which “the wiggle room will be gone” and the Treasury Department must cite the Chinese for currency manipulation if currency is misaligned without having to say there is “intent,” and impose additional penalties. Schumer:

“In the past Dem and Rep admins turned a blind eye to this problem. We are tired of the Chinese not playing by the rules that everyone else has to play by.

Later on the call Senator Schumer said,

Imagine if you had two stores across the street and one had a 40% price advantage – could charge 40% less than the other, where do you think people would shop?
[. . .] Every day we wait is a day we lose wealth, we lose economic advantage, we lose jobs.

Sen. Graham,

It is hard for American political leaders to keep their head in the sand any longer. … To ignore China”s currency manipulation is to ignore economic reality and the way economics works. … I am hopeful they [the Treasury Dept.] will go ahead and speak truth to power and the truth is that China’s currency is misaligned.

Previous administrations allowed all of this to continue with impunity. It is time to do something about it and bring the world’s trade back toward some kind of balance.
To help you read the report:
“Unfair China Trade Costs Local Jobs” by Robert Scott of Economic Policy Institute.

Download the PDF
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China’s American Enablers

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China argues that some American companies will suffer if China stops subsidizing manufacturing and adjusts their currency to market levels. They’re right. The fight over Chinese violations of trade rules is also another story about Wall Street and big, monopolistic corporations vs Main Street and American workers.
A China Daily story says China’s huge export surplus is being “misread.” The Chinese government says that US companies — the ones who close US factories, lay off workers, devastate communities and throw the costs onto the government — are also beneficiaries of China’s government subsidies. From the story,

China’s large trade surplus is often used by the United States to argue why China should allow its currency to rise.
Yet most US officials ignore a very important fact: a majority of China’s exports to the US are produced by US-funded companies and huge profits go back into American pockets. . . .
“China’s cheap labor helps foreign companies cut wage costs and increase their profits. Ironically, the rising profits go into foreign bosses’ pockets and China is left to take the blame for the trade imbalance,” said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University.

This story is correct. SOME Americans do benefit from closing our factories. Actually, “benefit” might even be the wrong word here. SOME Americans are getting fabulously wealthy from these policies, beyond anything seen before in history, with the rest of us falling further and further behind as a result. Wal-Mart, for example, with their stores full of Chinese goods, has for decades been wiping out regional and local retailers and lowering the local wage and tax base.
So yes, SOME Americans are doing very well, thank you, from these policies. They gain a quick buck today, the rest of us pay the costs later. In Wall Street’s War Against The Real Economy & We, The People, I wrote,

Over and over again we see the consequences of conservative economics and Wall Street domination: Short-term profits for a very few with devastating long-term consequences for the rest of us.

Wall Street firms have been making vast fortunes from this game,

The private equity company-buyout game works like this: buy a company, borrow against the company name and assets and put the proceeds straight into your pocket, sell off assets, outsource jobs, lay people off, cut pay and benefits for the rest, close facilities and factories, externalize costs onto the community, cheapen whatever the company makes or does, run up the debt some more, squeeze money out and pocket it and then sell. Hopefully you make off with the pension fund in the process.

They have been backed by American conservatives who have have long argued in favor of these “free market” and “free trade” scam that, close US factories, instead importing goods subsidized by China’s government. A few get fabulously wealthy at the expense of the rest of us. To persuade people to support this nonsense they say that adjusting China’s currency to market rates would “punish” consumers. Typical of this line is this from the Heritage Foundation a couple of years ago, China’s Undervalued Currency Benefits Americans,

To the extent that the renminbi is undervalued … the benefit goes to U.S. consumers and businesses, which pay lower prices for Chinese goods imported into the United States.
. . . U.S. consumers have the most to lose by congressional efforts to force revaluation of the renminbi. Chinese goods in the U.S. are cheap because the renminbi is cheap. Revaluation will weaken the purchasing power of the American consumers, mostly from the middle and lower economic strata, who depend on Chinese products to maintain their standard of life.

So here we are at a crossroads. April 15 the President has to officially declare that China is manipulating its currency and impose tariffs that will start to bring back factories and jobs to America. There is going to be tremendous pressure from the usual suspects to do the wrong thing, but the wrong thing has been going on long enough.

Chinese Currency Showdown

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
China is holding down the value of its currency, which means goods made there cost less everywhere else. This undercuts American companies that make things, so they close factories here and buy from there. This costs us jobs, forces down our wages and savings rate, and forces the country to borrow heavily. This imbalance has built up to a breaking point. It is past time to face facts and something about it.
Just how much is China undervaluing their currency? Paul Krugman today: “This is the most distortionary exchange rate policy any major nation has ever followed.” Yes, that much. And the result? Krugman says: “And it’s a policy that seriously damages the rest of the world.
A NY Times story yesterday explained how it works,

China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.

This creates a huge, huge — and growing — imbalance. China undercuts everyone else so they can’t afford to manufacture and have to buy things made there instead. Of course, that means China is sitting on massive piles of foreign cash. This is a bubble that grows and grows and grows. Everyone is worried, and it just gets worse.
But China won’t change policies. They are worried that the value of that pile will drop if their currency rate rises. In Pledge to China’s Leaders: You Will Lose Money on Government Bonds Dean Baker writes about why this would be great for us,

The logic is very simple. At the current exchange rate, the United States is running a massive trade deficit. …
This is of course unsustainable. The only way that this deficit can be corrected is by reducing the value of the dollar. …
. . . We should beg them to become unhappy with our fiscal and monetary policies and stop investing in Treasury bonds. The improvement in the trade deficit that will result from the fall in the dollar will create ten times as many jobs as any “jobs bill” that President Obama can possibly get through Congress.

Does all of this cash give China enormous power? In Is China’s Politburo spoiling for a showdown with America? Ambrose Evans-Pritchard writes,

Michael Pettis from Beijing University argues that China’s reserves of $2.4 trillion – arguably $3 trillion – are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.
The reserves cannot be used internally to support China’s economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China’s dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China’s over-capacity in steel is now greater than Europe’s output.

Change is in the air. The establishment is moving – recognizing that we will have to confront this. Dealing with this currency manipulation is the bipartisan solution that creates 3 milion jobs and costs us nothing. How bipartisan is it? Last Week conservative Pat Buchanan wrote about what he called China’s “disemboweling of America” and I agreed. I wrote,

So, this “free trade” stuff has worked out for us about as well as the “free market” stuff worked out for the economy. Free market and deregulation ideology destroyed the economy. Free trade has destroyed our ability to earn money and recover from the destruction of the economy.

The lesson to learn is if you want more jobs and don’t think we should have so much debt then you want a China to raise the value of its currency against the dollar. America has avoided formally labeling China a currency manipulator and taking appropriate steps, so things continue to get worse. We can’t keep hiding from reality forever. When something is unsustainable it can’t be sustained.
Next month the administration is going to have to change directions. A lot of air will come out of that Chinese currency bubble that was allowed to build up over the past several years, but the result will be a world starting to return to balance — and jobs here.

China Is Being Smart On Trade. Will We?

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Trade is not complicated. Trade is just an exchange of goods. You trade something for something. I buy something from you, and in exchange you buy something from me. It is simple. It is a win-win bargain because we both end up with something we needed. The wealth of each of us is increased.
In modern times we use money as an intermediary instead of making a direct and immediate trade of one good for another. You have the money I used to buy from you, and you can use it to buy from me in the future. Of course, we both have to agree on what to use as money and its value for exchanges, but once we do our transactions proceed smoothly.
Trade between countries works the same way: we buy tings made in Factorystan and Factorystan gets richer, then the Factorystanis buy from us and we get richer. Both of us have things we didn’t have before.
Add in additional countries and the equations become more complicated. But it comes back to the same principle. Goods are exchanged. Each side benefits.
So obviously the more goods a country makes or grows, the stronger its position in this global system.
Just as the intermediary of money enable individuals to trade more easily, it introduces ways for international transactions to proceed. We agree on the value of the money using “exchange rates.” This allows a balancing mechanism. As countries accumulate an excess of the money without exchanging it for goods made elsewhere the exchange rates fluctuate according to the rules of supply and demand, making their goods more expensive to others. Therefore goods made in the other countries become less expensive and the exchange flows should come into balance.
In free markets things come back into balance. But this natural balancing is not occurring today. China has been building up their economic power for some time. China should be the economic powerhouse now. According to the rules of currency and balance its currency should be extremely strong. Its products should be the most expensive on the planet. Its people should be rich, enjoying the consumption of things made elsewhere. This should be providing strong incentives to open factories in our own country.
This is not what is happening. Instead China’s currency is not strong, so the prices for their goods continue to undercut everyone else’s. China is manipulating the exchange rate so that its currency stays low. This keeps the price of its goods low, and keeps the business flowing to its factories. They are not buying from us. In fact they are even requiring that internally they buy Chinese.
This is occurring under the current rules described as “free trade.” Of course this is not free trade. It is manipulated and enables China to capture much of the world’s manufacturing. China is rising up and seizing the world’s means of production.
China is just being smart. The problem is that we are not responding and protecting our own interests. Our country’s leadership appears to be hamstrung, unable or unwilling to challenge this and develop a long-term economic and manufacturing plan. Part of the reason for this is that a wealthy Wall Street few profits from this in the short term, as we bleed away our country’s long-term interests. Our country’s decision-making processes appear to be under the control of that wealthy Wall Street few. And they are selling China the rope with which it is hanging us.
Theorists tell us that eventually economic forces should force a rebalancing of China’s currency and a shift in the world economic order. But there are a number of problems with sitting back and waiting for this to occur. It could take decades, and things could get (and may already be) so far out of whack that any rebalancing will be “disorderly,” meaning another – and worse – chaotic economic crash. And there is no guarantee that a rebalancing will ever occur. As China increases its economic power it increases its ability to bend the rules in its favor. The lesson learned so far is that manipulating the rules is highly profitable and brings few, if any, consequences.
Even if a rebalancing does eventually occur there is no guarantee that it will help us. When a factory closes we lose more than the jobs. We lose the know-how – the intellectual infrastructure that supports modern technological processes. We lose the supply chain. We lose the customer base. We lose the economic power that could enable us to rebuild. We lose more of our manufacturing capacity every day this situation is allowed to continue.
Our country’s leadership must engage and develop policies to fight this and restore our economic power. We need an economic plan. We need a manufacturing plan. We need an accountability plan, holding Wall Street and China accountable, making them follow the rules. We need to know that our leadership is on our side and is fighting for us.
Trade is a two-way street and it is time that the goods flow in both directions. “Free” trade is not “free” if only one side plays by the rules.

Free Markets and Ponies

In science you study what happens. In ideology you talk about what you wish would happen. One DEscribes, the other PREscribes.
The Wrath of the Free Market God takes a look at what actually happens when right-wing economic ideology is implemented. Enron, concentration of wealth, corporatization and the Dubai Ports deal.

Make no mistake what is happening. The Globalists are attempting to replace the nation/state with corporate hegemony. In many respects they have already succeeded. Our democracy has been subverted not by dictatorial government takeover, but by the stealth usurpation through a shadowy pay to play scheme. Instead of the traditional coup by military means, an army of corporate lobbyists has descended upon Washington with decidedly similar results.

Now, to be fair, I will grant that what we have with countries like China certainly is not free trade. China “pegs” its currency – and Bush lets them. This means that everything made in China costs about half as much as it should, and everything we make costs Chinese consuers about twice what it should. And our trade with most other countries is certainly not “free” because they by-and-large subsidize industries, don’t allow unions or environmental laws, or so many other non-free-trade violations that you can’t keep up And Republicans let them all get away with it in the name of free-market ideology.
But, of course, that’s the real world, and that’s the point. REAL people take advantage when you let them. That’s where DEscribing what people actually do interferes with right-wing ideological dreams of what people should do. People SHOULD get ponies. But what really happens is we get poorer, lose our health insurance, lose our pensions, lose our manufacturing infrastructure and lose our democracy.