The Bipartisan Solution that Creates 2 Million Jobs and Costs Nothing
By Mike Elk
March 16, 2010 - 3:00pm ET
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Today a bipartisan group of 130 members of Congress, ranging from Dennis Kucinich on the left to Joe Wilson on the right, wrote to President Obama asking him to stop Chinese currency manipulation. The members of Congress wrote:
By pegging the renminbi (RMB) to the U.S. dollar at a fixed exchange rate, China unfairly subsidizes its exports and disadvantages foreign imports. As we work to promote a robust U.S. economic recovery, it is imperative that we address this paramount trade issue with all available resources. We urge your agencies to respond to China's currency manipulation with the actions outlined in this letter. Doing so will allow American companies and workers to compete fairly against their Chinese counterparts and will boost U.S. economic recovery and growth.
The impact of China's currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors. U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports. The devaluation of the RMB also exacerbates the already severe U.S-China trade deficit. Statistics show that between January 2000 and May 2009, China's share of the U.S. trade deficit for non-oil goods grew from 26% to 83% -- an untenable pattern for American manufacturers.
The crisis with China is accelerating quickly, and is so severe that economists from all over the political spectrum are calling for the U.S. to take drastic action against China currency manipulation. Economists such as Paul Krugman, who was long a champion of free trade and opponent of tariffs, are saying that what China is doing isn't free trade, but cheating. In The New York Times on Monday, Krugman wrote:
Some still argue that we must reason gently with China, not confront it. But we’ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao, the Chinese prime minister, declared — absurdly — that his nation’s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.) And Mr. Wen accused other nations of doing what China actually does, seeking to weaken their currencies “just for the purposes of increasing their own exports.”
But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.
This follows similar sentiments echoed last month by free-trade loving, tariff-hating Robert Samuelson. Samuelson, writing in The Washington Post, said:
Greater conflicts and a collision of national egos seem inevitable. No longer should we sit passively while China's trade and currency policies jeopardize jobs here and elsewhere. Political differences between the countries are increasingly hard to ignore.
The crisis has gotten so severe that economists who have long fought for conservative ideology and against tariffs are saying we need them to correct the imbalance. Last week, progressive economist Rob Scott of the Economic Policy Institute and C. Fred Bergsten, director of the conservative Peterson Institute for International Economics, both agreed that fighting Chinese currency manipulation is the key to fixing our economy. Bergsten stated that up to 3 million jobs could be created by addressing Chinese currency manipulation. Bergsten told the forum that:
If there is going to be a serious jobs program, the exchange rate of the dollar must be at the center of the debate
Even right-wing polemicist Pat Buchanan, representing of the angry white men of the Tea Party movement, says we have to do something about Chinese currency manipulation:
Even a (Milton) Friedmanite free-trader should be able to see the disaster all around us and ask: What benefit does America receive from these mountains of imported goods to justify the terrible damage done to our country and countrymen?
Indeed,a recent USA Today/Gallup Poll showed that Americans viewed protecting manufacturing as the best way to create jobs. Americans across the political spectrum agree that best way to deal with the jobs crisis is to protect manufacturing.
The question is will President Obama listen? On April 15, the administration is releasing a list of currency manipulators around the world. The U.S. in the past has failed to declare China a currency manipulator, even though Obama called China a currency manipulator during the campaign. Labeling China a currency manipulator would be a first step in confronting China on unfair trade. If China refuses to take action to correct this problem, then the U.S. would be compelled to do what Krugman is advocating and place tariffs on China.
The people have spoken. President Obama must now listen to Americans from across the political spectrum and confront China—labeling them a currency manipulator and, if that doesn't work, placing tariffs on China.
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