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.
There is a great deal of pressure on the Obama administration to declare China as a currency manipulator, and with very good reason: they are manipulating their currency. This manipulation gives goods made in China a huge price advantage over goods made in other countries, and is a large part of the reason so many of our companies move manufacturing and jobs from here to there. This is, of course, not “free trade” it is a stacked deck.
In What Chinese Currency Manipulation Looks Like, Eric Lotke shows how China gains this trade advantage,
The dollar exchange with China “defies the laws of monetary physics.” During this U.S.-led global recession, dollars aren’t worth as much as they once were. The natural physics of exchange makes U.S. goods relatively less expensive for others to buy, but makes foreign goods more expensive for Americans to buy. In a free market for currency, that would help bring accounts back into balance.
[. . .] In the American heartland the issue isn’t exchange rates, of course. The issue is jobs. American workers can compete dollar for dollar against Chinese workers. They can’t compete dollars against manipulated Yuans.
Many say the resulting price advantage is 25% or more. The Peterson Institute for International Economics in Washington has estimated that the yuan is undervalued by about 40 percent against the U.S. dollar. So before any other factors in the competition for goods, Chinese-made goods have a 25-40% advantage out the door. That’s hard to compete with and a trip through any Wal-Mart will demonstrate the results – as does a look at any chart of American manufacturing job losses. This job-devastation has occurred since the conservative “free traders” got their hands on US policymaking.
Last month in Our Great Recession is China and Southeast Asia’s Great Opportunity Leo Hindrey wrote,
In just the last year, China’s share of our nation’s trade deficit in manufactured goods jumped from 69% to an almost unbelievable 80% today, while its share of U.S. imports overall, non-resources and resources combined, increased 20%. In dollars, China right now is exporting about $330 billion annually to the United States, while purchasing less than $90 billion here.
. . . Something on the order of 90% of China’s domination in manufactured goods vis-à-vis the U.S. is due to its subsidies to domestic and foreign-owned manufacturers alike – subsidies based around plant sitings and financings, taxes and of course currency – and to its extremely low environmental standards. And the sad reality is that after years of accumulating market share and building the infrastructure it needed in order to dominate much of the global marketplace, all with the help of massive (often illegal) subsidies and a massively undervalued currency, China’s trade advantages in many vital industries are now so embedded that they will exist for years to come even if President Obama is successful in confronting China’s manipulated exchange rate, which of course is far from assured.
Please read the whole post, there is much more to learn.
The Obama administration has twice declined to state the obvious and declare China a currency manipulator. Of course we don’t know what is going on behind the scenes leading to these decisions. Perhaps there are threats to dump the bonds the hold. Or perhaps previous administrations have tied our hands with secret deals. But our government is supposed to be transparent and we are supposed to be informed and in charge, so these are not excuses. And, if we are ever going to pay off those bonds, we have to regain manufacturing so we can earn the money to do it with.
Next month the President again must decide whether to label China as a manipulator. If he does this regulations require that we enter into negotiations that could end up with trade sanctions.
It is time to state the obvious. The Obama administration is starting to look like Ben Bernanke did when he said there was no housing bubble and that it wouldn’t hurt the economy when it popped.
Last month 15 senators, including an astonishing 6 Republicans wrote a letter to Commerce Secretary Gary Locke “expressing serious concerns about the department’s failure to conclude that China’s currency manipulation is in fact a “countervailable subsidy” to its domestic exporters.” So the pressure is on for the President to put it on the record that China is doing what everyone knows they are doing, and start the process of readjusting and rebalancing, so we can get things back on track.
Tomorrow (Friday) there is an all-day Economic Policy Institute forum, Currency manipulation: how should the US respond? Panelists include Paul Krugman and Steelworkers union President Leo W. Gerard. Click through for details. The forum will start at 9 AM at The Mayflower Room in the East Room.
If you can’t make it to the forum be sure to watch the live webcast here.