What a difference a week makes. Just last week, the Beijing government and outsourcers thought they could run out the clock and avoid a long overdue legislative reckoning on China's currency manipulation, which serves as a drag on global growth, a siphon for American jobs and wealth, and an inflator of dangerous imbalances in the world economy.
But following a rapid succession of events this week, Congressional action on China's cheating looks increasingly likely. The chances for passage of a bipartisan bill in Congress that would deter China from manipulating its currency have improved dramatically.
Let's review the week's developments:
- H.R. 2378, the Tim Ryan (D-OH)-Tim Murphy (R-PA) bill on currency, gained 16 new cosponsors, including key members of the Ways and Means Committee. Meanwhile, about 100 Members of Congress--including more than 30 Republicans--urged the Speaker to schedule the bill for a vote.
- In testimony before House and Senate committees on Thursday, Treasury Secretary Timothy Geithner took a much harder line on China than he had just three months ago.
- House Speaker Nancy Pelosi told CNBC's John Harwood that she supported bringing legislation to the floor, provided that it is compliant with global trade rules. (Testimony given at a hearing on Wednesday left little doubt that the legislation is, in fact, on solid legal ground.)
- The Economic Policy Institute estimated that ending China's currency manipulation could add as much 1.4 percent to economic growth in the U.S., based on calculations made by Nobel laureate Paul Krugman. That would lead to $500 billion in additional revenue--or deficit reduction.
- Even the Chinese government got into the act, raising the value of its currency, the Yuan, to a new high against the dollar, definitively proving that it (a) manipulates the exchange rate, and (b) responds to political pressure from the U.S.
So what will next week bring? Predictions of trade wars, arguments for inaction or quiet diplomacy, and ridiculous defenses of Beijing's mercantilism. We'll look forward to tackling those myths one day at a time. Stay tuned.
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It’s the manipulation of our currency
It affects all our balances of trade, not just with China
If America didn’t have a Blind Trade policy for the last 40+ years, there would be no need for a Fiscal Commission.
H R 2378 is evidence that Democrats are willing and able to push-back against the Obama administration; something the Republicans were unwilling to do 99.9% of the time with Bush-43.
H R 2378’s passage with an 81.5% majority, for a controversial issue, evidences the most Bipartisanship for the 111th congress and dysfunctionality of the U.S. Senate, if it fails to become law.
Look at the evidence for the tire tariffs, imposed since mid year 2009 (35% tariffs against Made in China tires). In the 1 year hence:
1. Tire prices went up 25% or more for the category tariffed (went from $200 to $250 a set of 4) - it is the working class that bears the brunt of this price rise for affordable tires - prices for all tires went up 10-20%;
2. Tire imports WENT UP 21% (even as tire imports from China dropped by half).
3. Dept. of Labor stats showed that for the first 6 months of 2010, U.S. tire manufacturing jobs DROPPED in number by 10%.
This of course does not even take into account the retail jobs lost due to the drop in demand (as a result of the higher prices).
Historically, during the period when the RMB appreciated 21%, the trade deficit with China went UP over 30% (from US$200B to about US$268B). The same trend showed for trade with the EU - the trade deficit with the EU WENT UP when the Euro appreciated from US$1/Euro to US$1.50/Euro.
Protectionism WILL NOT cure trade deficits. Only increased exports will. Antagonizing the fastest growing export market in the world (China) with protectionist moves at this juncture is simply dumb.