froomkin@huffingtonpost.com
There's a reason why Democrats and Republicans, who seemingly can't agree on anything these days, voted by an overwhelming 348 to 79 margin in the House of Representatives on Wednesday to get tougher on China, threatening to impose tariffs unless it stops manipulating its currency.
There is no doubt that China artificially undervalues the renminbi -- by somewhere between 20 and 40 percent -- and plays fast and loose with World Trade Organization rules to give its exports huge competitive advantages.
If it could somehow be convinced not to do so any more, Chinese products and labor would suddenly become much more expensive. The ensuing shift in cost-benefit analyses would likely generate hundreds of thousands of American jobs. The total cost to the U.S. Treasury would be zero.
That's got a nice ring to it for congressional lawmakers, especially in an election year.
The executive branch, however, is not going along. The Obama administration, like its predecessors, seems to think a less confrontational approach will bear fruit. And the issue alsodivides the political left: Unions want China beaten into submission, but some other progressives say that's just not possible and could backfire badly.
But our current policies don't seem to be having any effect at all, so it's hard to imagine that a bit more fortitude in our dealings with China would hurt. And the payoffs in terms of jobs could be immense.
"Forcing China to revalue its currency is not just important for this recovery," said Ross Eisenbrey, vice president of the Economic Policy Institute, "I think it's really critical for the future of the economy."
Eisenbry estimates that a 25 to 40 percent revaluation of China's currency would lead to about a million more jobs -- and that most of them would be in manufacturing.
"It's not just that people would stop moving manufacturing over there, but our goods would be more competitive in international markets," he told HuffPost.
Eisenbry's colleague Robert E. Scott summed things up this way in March:
Since China entered The World Trade Organization (WTO) in 2001, the extraordinary growth of U.S. trade with China has had a dramatic effect on U.S. workers and the domestic economy. The United States is piling up foreign debt, losing export capacity, and the growing trade deficit has been a prime contributor to the crisis in U.S. manufacturing employment. Between 2001 and 2008, 2.4 million jobs were lost or displaced, including 91,400 in 2008 alone, despite a dramatic decline in total and bilateral U.S.-China trade deficits that began in the second half of that year....
The computers, electronic equipment, and parts industries experienced the largest growth in trade deficits with China, leading with 627,700 (26%) of all jobs displaced between 2001 and 2008.
Scott helpfully tallied job loss by congressional district to make his point.
C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington, told a congressional hearing last month that getting China to revalue its currency would generate300,000 to 700,000 new jobs, most of them paying well over the national average. He described forcing China to revalue its currency as "one of the most cost-effective stimulus measures now available to the US Government."
House Ways and Means Committee Chairman Sander M. Levin (D-Mich.) , the sponsor of the bill that passed this week, summarized his position in a committee hearing last week:
1. China's persistent manipulation of its currency is a major distortion in the international marketplace.
The Government of China has now accumulated more than $2.4 trillion in foreign assets - far greater than the reserves of any other country today and generally believed to be greater than the reserves held by any other country in history. In 2009 alone, we exported $70 billion to China, who, in turn exported $296 billion to the U.S. - a staggering $226 billion trade deficit with China alone.2. China's exchange rate policy has a major impact on American businesses, and American jobs, which is what this is all about.
For years, U.S. workers, businesses and farmers have been held to a competitive disadvantage because of China's intervention to keep the price of Chinese goods to the U.S. artificially low and of U.S produced goods to China artificially high.
3. Efforts to date have not worked to correct the imbalances. They have basically relied on discussions between the parties.
In June (shortly before a G-20 meeting), China announced that it would allow the RMB to appreciate for the first time since the middle of 2008. Since then, however, China has allowed the RMB to appreciation less than two percent against the dollar - most of this appreciation taking place in the last two weeks.
4. Additional measures are necessary, and that is why we are here today.
5. The legislation before us today clarifies that countervailing duties can be imposed to offset the effects of an undervalued currency. Countervailing duties would be available to any U.S. industry that could demonstrate that it has been "materially injured" by imports from the country with the undervalued currency.
By doing so, the bill will help to provide meaningful relief to those who are harmed by China's exchange rate policy.
Treasury Secretary Timothy Geithner last month told Congress about his frustrations with the Chinese. "We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited," he said. "China needs to allow significant, sustained appreciation over time to correct this undervaluation and allow the exchange rate to fully reflect market forces."
But his incrementalist approach earned him an epic tongue-lashing from Sen. Charles Schumer (D-N.Y.):
You laid out the policy China has, which is mercantilism, not free trade. And when we ask that people do something about it, whatever administration, they shrug their shoulders and say, "Well, nothing much we can do."
Not so. At a time when the U.S. economy is trying to pick itself up off the ground, China's currency manipulation is like a boot to the throat of our recovery, and this administration refuses to try and pick that boot -- take that boot off our neck.China's overt and continuous manipulation of its currency to gain trade advantage over its trading partners is about as close to a fact, an economic policy, as you can get.
Now, those of us on the committee -- some of us, very few actually -- disagree about what to do about it, and maybe there are some who think, even though it's a problem, we shouldn't do anything about it.
But, Mr. Secretary, although there may be some modest disagreement about what to do, I'm increasingly coming to the view that the only person in this room who believes China is not manipulating its currency is you.
And so the question I ask is, what is the administration afraid of, when every month we lose jobs and wealth that we will never recover? It diminishes America, our standard of living here in America, and America as a world power, for a reason that just about everybody admits is wrong.
Now, let me ask you, are you afraid that if the Chinese -- if we cite the Chinese they'll retaliate by limiting access to their market for U.S. firms or their central government will provide billions of dollars of financial assistance to state-owned domestic enterprises? Can't be that, they do already.
Are you afraid that if you cite the Chinese they'll retaliate by stealing our intellectual property? Don't they do that already?
Are you afraid that if you cite the Chinese their government will force U.S. firms to give up technological secrets in the future in return for access to their market? They do that already.
Are you afraid if you cite the Chinese they'll respond by selling some of the trillions of dollars of treasuries they hold? But by doing that, they'd cut their nose to spite their face.
So, Mr. Secretary, you are vowing today to take a tougher stance against China's currency manipulation? In all due respect, I'll believe it when I see it. I'll believe it when I see it.
Each administration thinks it can resort to diplomacy -- let's go over and talk; it can persuade the Chinese it's in their best interest to move to a market-based regime. But each time it's rather like a bad China currency Groundhog Day movie, except the difference is the alarm clock wakes us up each morning and we do the same thing over and over again. We don't learn our lesson, we don't change our tactics, and the Chinese have taken advantage of this for close to 10 years now.
What is the administration afraid of? You know we're right. You know the United States is put at a terrible disadvantage. You refuse to act. What are you afraid of?
New York Times opinion columnist Paul Krugman writes that the administration's concerns that the Chinese would stop buying our bonds are not justified. "[I]n a world awash with excess savings, we don't need China's money -- especially because the Federal Reserve could and should buy up any bonds the Chinese sell." The dollar might then fall, "[b]ut this would actually help the U.S. economy, making our exports more competitive."
Krugman explains:
China is deliberately keeping its currency artificially weak.
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China's trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
After mocking U.S. officials for trying to reason with China, he concludes:
Clearly, nothing will happen until or unless the United States shows that it's willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy.
And former CEO Leo Hindery reminds us in his Huffington Post blog that President Obama used to whistle a different tune:
President Obama's current hide-the-pea approach regarding China trade is of course in complete contradiction to Candidate Obama's promises throughout the '08 campaign, which he most notably advanced in a speech he gave to the United Steelworkers on July 2, 2008. In that speech he said: "Change is knowing that for trade to work for America, it has to work for all Americans; that we have to stand up to countries that are manipulating their currency or flooding our markets with subsidized goods; that it's wrong to have a 'one-size fits all' trade policy that treats countries as different as China and Mexico as if they were the same; and that our job ends not when a trade deal is signed, but when it's enforced."
Here, too, is Obama in April 2008, in Pittsburgh:
[W]e need to finally confront the issue of trade with China. As I've said before, America and the world can benefit from trade with China. But trade with China will only be good for you if China itself plays by the rules and acts as a positive force for balanced world growth.
Seeing the living standards of the Chinese people improve is a good thing -- good because we want a stable China, and good because China can be a powerful market for American exports. But too often, China has been competing in ways that are tilting the playing field.It's not just that China is following the path taken by so many other countries before it, and dumping goods into our market while not opening their own markets, something I've spoken out against. It's not just that they're violating intellectual property rights. They're also grossly undervaluing their currency, and giving their goods yet another unfair advantage. Each year they've had the chance, the Bush administration has failed to do anything about this. That's unacceptable. That's why I co-sponsored the Currency Exchange Rate Oversight Reform Act. And that's why as President, I'll use all the diplomatic avenues open to me to insist that China stop manipulating its currency.
