John Boehner has declared the China currency bill, which passed the Senate with rare bipartisan support and 63 votes, “dead on arrival” in the House. Apparently the interests of multinational corporations to keep their labor costs low trumps the interests of out-of-work Americans. This House Speaker knows where his bread is buttered.
Just to bring this back to actual facts instead of political posturing, Sen. Sherrod Brown, who authored the currency bill in the Senate, has an op-ed in the Cincinnati Enquirer – Boehner’s hometown paper – explaining the issue.
A report released last month estimates that our trade deficit with China, exacerbated by Chinese currency manipulation, has caused the loss of more than 2.8 million American jobs in the past 10 years – with two-thirds of the lost jobs in the manufacturing industry.
Currency manipulation provides an unfair subsidy to Chinese exports – of up to 40 percent by most economists, and the most protectionist policy of any major country since World War II, according to economist C. Fred Bergsten of the Peterson Institute. Additionally, American manufacturers seeking to sell their products to China – our nation’s fastest-growing export market – are hit with what amounts to an unfair tariff. The advantages enjoyed by Chinese manufacturers cost American jobs.
This doesn’t necessarily mean that Chinese manufacturing jobs automatically come back to the US if they stop the artificial deflation of their currency, although we are starting to see some insourcing already for various reasons. In addition, favorable trade rulings have helped US industries already, as we’ve seen in the WTO ruling against Chinese tire dumping and on steel tubing, as Brown mentions. Those have led to real manufacturing gains in the US.
But there are other ways that re-establishing a currency balance helps the economy. American goods become cheaper, and that includes agriculture, and we get more tourism here, so there’s a lot of potential to get a boost from the Chinese market. As Paul Krugman writes, even a shift of manufacturing jobs from China to Mexico will mean a better regional economy, which improves things in the US. In addition:
Most important, however, is that you really need to think of this as a global adding-up issue. If China and other currency manipulators run smaller trade surpluses, who will be the counterparties? Emerging economies that compete more directly with China than we do are by and large not in liquidity traps, and indeed are facing inflationary pressure. So any Chinese appreciation, while it directly tends to raise their net exports, will probably show up in matching appreciation in their currencies, setting in motion a series of domino effects that end up pushing the adjustment onto countries that are in liquidity traps, namely the US, Japan, and Europe.
It’s well-known that many Asian economies peg their currencies to China’s, so this is almost a continent-wide problem. And then there’s the point that China is violating international trade law through their actions, in case the rule of law still means anything. So those who look at it as “but those specific jobs won’t come right back to the US” are being extremely narrow-minded and literal, probably as a front to the interests who want to keep the cost of Chinese labor and goods very low.
It’s possible that Senate passage will be enough to send a message to the Chinese to stop, or at least limit, the artificial holding down of their exchange rate. But at some point, addressing our record trade imbalance becomes an urgent need. We cannot do that with messages alone. We have to address it through policy that over time reduces our trade deficit.