Last week, committees on both sides of Capitol Hill plumbed the conundrum of Chinese currency manipulation.
The conundrum isn’t that — or why — China is manipulating its currency: By undervaluing it, China is systematically able to underprice its exports, putting American (and other nations’) manufacturing at a significant disadvantage. The conundrum is why the U.S. isn’t doing anything about it.
Treasury Secretary Timothy Geithner explained the administration’s position, which, thanks to increasing pressure for action, is growing tougher. There are certainly plenty of senators and congressmen — and Main Street Americans — who’d like to see the White House place some tariffs on the underpriced Chinese imports. If the administration doesn’t act, Congress may just consider mandating some tariffs on its own.
But Congress should really do more. How about convening hearings to look at the pressure Wall Street puts on American companies to offshore manufacturing to China, where new factories are subsidized and workers are cheap? Or our inability to compete with the Chinese in such cutting-edge industries as alternative energy?
Congress could begin by delving into the 5,800-page complaint the United Steelworkers filed last week with U.S. trade officials documenting Chinese violations of World Trade Organization rules. As the global market for green technology has grown, the Chinese have responded with massive subsidies to their wind-turbine and solar- panel manufacturers.
The administration must rule shortly before the November elections on whether it will take the steelworkers’ complaint to the WTO. It shouldn’t be that hard a call. There’s little dispute that the Chinese government controls such strategic industries as alternative energy and that it subsidizes that industry massively, in clear violation of WTO rules.
Politically, the American public plainly supports policies that boost American industry and curtail offshoring. A Heartland Monitor poll, sponsored by Allstate Insurance and the National Journal, asked Americans to choose one of three options for how America should deal with the global economy. Thirty-six percent backed a program that instituted tariffs on imports and penalized companies for offshoring jobs. Thirty-two percent supported governmental programs to help strategic domestic industries. Just 23 percent backed a laissez-faire free-trade policy.
But there’s nothing laissez- faire about our Chinese competition, which raises a question for American conservatives: If they’re opposed to state support for industries, shouldn’t they back the steelworkers’ complaint? They can’t be credibly concerned with what they see as the growing role of government in the private-sector U.S. economy and remain unconcerned about the complete governmental control of our ostensibly private-sector competitors in China.
One group that, until recently, you’d expect to join the steelworkers’ complaint is American manufacturers. But American big business is thoroughly cowed by China. Our major manufacturers and retailers now make, buy or sell so many of their products there that they dare not offend the Chinese government. That not only explains why the steelworkers filed the complaint by themselves, but also why the union has moved into a role more customarily filled by American entrepreneurs.
In August, the steelworkers announced a deal with the Shenyang Power Group that will result in Shenyang building a wind-turbine factory in the U.S. The genesis of the deal was the revelation last year that in providing subsidies to a Texas wind farm (the kind of subsidies that don’t violate WTO rules), the U.S. Department of Energy was providing funds for a project that would employ 30 American workers — using wind turbines built in China by several thousand Chinese workers. The deal exposed the illogic of a national energy policy that ignores the question of where the technology is built. The administration responded by proposing an expansion of an already oversubscribed program of tax credits for domestic green manufacturers.
American big business is now so inextricably invested in China that it won’t defend or promote American-based manufacturing. Those tasks have fallen to our largest manufacturing union.
By any dispassionate measure, it’s our labor movement, not our leading businesses, that deserves the term “American.”
Harold Meyerson is editor-at-large of American Prospect and the L.A. Weekly.
Obama administration’s toughening position
“The pace of appreciation has been too slow and the extent of appreciation too limited. We have to figure out ways to change behavior.”
— Treasury Secretary Timothy Geithner in congressional testimony Thursday regarding China’s currency
Seeking stronger action
“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. This administration refuses to try and take that boot off our neck.”
— Sen. Charles Schumer, D-N.Y., calling for a more aggressive campaign for a stronger yuan
Chinese reaction
“Pressure cannot solve the issue. Rather, it may lead to the contrary.”
— Chinese Foreign Ministry spokeswoman Jiang Yu, rejecting the Obama administration’s tougher language on the yuan
Academic observation
“China’s currency regime remains one of the most visible hot spots in the U.S.-China relationship. As the U.S. midterm election nears, the temptation of grandstanding on China will be irresistible to most Congressmen.”
— Eswar Prasad, a professor at Cornell University and a senior fellow at the Brookings Institution
China trade:
Lawmakers are pressuring the Obama administration to take a tougher stand with China on trade issues that they say have cost millions of American jobs.
Yuan value:
More than 100 House members are pushing for a vote on legislation that would give the administration more powers to impose sanctions on countries that are judged to be manipulating their currencies to gain trade advantages.
Geithner pledge:
Treasury Secretary Timothy Geithner pledged at two congressional hearings Thursday that the administration would work with Congress to develop a more effective strategy to protect U.S. interests.
By the numbers
40% Amount by which leading economists estimate that China’s currency, the yuan, is undervalued
2.4 million Number of jobs that the United States has lost to China in the past decade, according to the Economic Policy Institute
Less than 1% Amount by which the yuan has increased since June when China agreed to let its currency float more freely
$1.5 trillion Cumulative manufacturing trade deficit the United States experienced with China between 2001 and 2008
15% China’s share of world steel production in 2000
47% China’s share of world steel production in 2009
