Lawmakers and others are warning administration officials that they must do more to ensure a more fairly-valued Chinese currency, or otherwise put American jobs and President Obama’s hopes to grow the U.S. economy in jeopardy.
The U.S. Treasury issued a report Thursday designating the Chinese currency as undervalued — but stopped short of designating China as a currency manipulator.
China’s undervalued yuan, also called renminbi, artificially depresses the cost of Chinese products and falsely increases the price of American goods. The resulting lopsided trade has closed American factories and cost American jobs.
“The administration is correct in calling the renminbi undervalued,” says Leo Gerard, international president of the United Steelworkers (USW) union, representing 850,000 workers in North America. “The next crucial step is to do something about it.”
China undervalues its currency by using renminbi to buy dollars. China now holds $2.4 trillion in U.S. currency. Even conservative economists agree that the renminbi is undervalued by between 25 and 40 percent against the dollar.
As a result, U.S. products sold in China are as much as 40 percent overpriced. And Chinese companies benefit because their products are artificially discounted by as much as 40 percent when sold in the U.S. That price break for Chinese companies has enabled them to sell products so cheaply in the U.S. that efficient and productive American firms, including paper and steel pipe manufacturers, fall victim to the distorted market and are forced to close. The currency manipulation also swells the U.S. trade deficit with China, making the U.S. increasingly indebted to the Asian country, the USW notes in a statement.
In 1960, before the U.S. opened trade with China, manufacturing accounted for a quarter of the U.S. gross domestic product (GDP) and employed 26 percent of the labor force. Now, after giving China most favored nation trade status and a series of counterproductive trade deals including NAFTA, U.S. manufacturing is 11 percent of GDP and accounts for under 10 percent of total employment. More than 2 million factory workers have lost their jobs in the past three years.
“President Obama’s goal of doubling exports within five years will be impossible to meet if illegitimately undervalued Chinese currency continues to force American manufacturers out of business,” Gerard says.
Under pressure from U.S. officials to allow its currency to be valued naturally on international markets, China announced June 19 that it would establish a more flexible exchange rate policy. Since then, however, the renminbi has appreciated less than 1 percent against the dollar. “When you consider that it’s undervalued by as much as 40 percent, that one percent is meaningless,” Gerard says.
The Treasury Department report this week described China‘s June announcement that it would permit the renminbi to float up on international markets as a “significant development” that the U.S. would closely and regularly monitor.
“Secretary [Timothy] Geithner delayed the release of the semiannual exchange rate report to allow room for China to make meaningful progress on moving its currency to market value,” says Sen. Sherrod Brown (D-Ohio), a leading voice on the issue of China’s currency. “That process has recently begun, but we are years away from meaningful progress and the Administration cannot think its work is done on the issue. I’m disappointed the Administration did not label China as a currency manipulator in its delayed report, and I look forward to Secretary Geithner testifying before the Senate Banking Committee to explain this.
“Chinese currency manipulation undermines Ohio workers, Ohio manufacturers, and Ohio jobs,” Brown adds. “It’s clear that the undervaluation of the yuan allows for cheap Chinese imports to undermine American-made products. If the Administration is serious about American manufacturing and boosting exports, we’ve got to make sure that our trading partners play by the same set of rules that we do.”
If China prevents the value of the renminbi from appreciating dramatically against the dollar before the next Treasury report on currency is due Oct. 15, “then Treasury must name China as a currency manipulator and take the next steps that are crucial to balance the currency and preserve American manufacturing,” Gerard says.
If Treasury fails to act, Congress will, Brown adds.
“Congress also has tools to address currency manipulation and we’re prepared to stand up for workers and manufacturers who continue to play by the rules while their Chinese competitors do not,” he says.
Sen. Chuck Schumer (D-N.Y.) in March introduced, and Brown cosponsored, bipartisan legislation that would amend the Exchange Rates and International Economic Policy Coordination Act of 1988 to clarify the definition of manipulation with respect to currency, reduce the global account surplus requirement necessary for the United States to take action, and establish additional reporting guidelines for Treasury to include in their bi-annual reports to Congress.
The USW notes that it supports the Schumer bill.
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.