currency

Can We 'Insource' Jobs?

Dave Johnson — Tue, 10 Jan 2012 13:51:34 -0500

President Obama will host a forum on insourcing jobs Wednesday. The forum will feature leaders of several companies who have already shifted jobs back home and are encouraging others to do the same. According to the White House,

On Wednesday, January 11, 2012, President Obama and Vice President Biden will host an “Insourcing American Jobs” forum at the White House focused on the increasing trend of companies choosing to “insource” jobs and invest in growing in the United States.

As part of the “Insourcing American Jobs” forum, the President will meet with business leaders, as well as experts on the topic, to discuss why it’s competitive to locate in the United States and what more can be done to work with companies to take similar steps to insource American jobs. Following the meeting, the President will deliver remarks to a group that will include leaders from the government and the private sector that are taking steps to encourage companies to insource and invest in America. In the afternoon, Cabinet officials will host panel discussions with both small and large businesses and experts on insourcing and investing in America.

Leading up to this White House forum, the President said in his Weekly Address, "On Wednesday the White House will host a forum called “Insourcing American Jobs.” We’ll hear from business leaders who are bringing jobs back home and see how we can help other businesses follow their lead."

Headwinds

There are still headwinds pushing against efforts to bring jobs back. While China has allowed its currency to appreciate a bit, it is still undervalued by as much as 30% to 40%, which means goods made in China are priced 30% to 40% lower than goods made here. That's even before the effect of Chinese subsidies, trade violations, suppression of labor rights, cost savings from allowing environmental degradation and other advantages, including their massive investment in infrastructure, are taken into account.

The Wall Street Journal highlighted another problem for manufacturing: In spite of conservative complaints about debt, in truth the safety of U.S. currency makes it attractive and therefore "stronger," especially now, with the worries over the euro. This "flight to safety" has the reverse effect of China's currency manipulation. Where China manipulates its currency to make it "weaker," the strength of the U.S. dollar increases the price in international markets of goods made in the U.S. The WSJ explains, in U.S. Factories Could Suffer From Dollar’s Appeal,

Being a safe haven can be a drag. The euro zone remains the albatross around the global economy’s neck. Any hint about default, a euro-zone break up or banking collapse sends skittish investors into the secure embrace of the U.S. dollar.

... A strong dollar may enhance the U.S.’s sense of pride. But it will be a headwind for U.S. manufacturing.

That isn’t because a weak euro will cut U.S. exports to Europe. The euro zone is in recession and won’t be buying much from any nation.

The challenge will come in emerging markets that have the money and pent-up demand for foreign-made goods.

... A weak euro will give European producers a price advantage in emerging markets. This is especially true for commodity materials, such as chemicals and paper, that compete on price more than brand-name preference.

Can insourcing brings jobs back? Michael Mandel asks at the Wall Street Pit, Can Insourcing Be A Major Source of Job Creation?

Can insourcing be a major source of job creation for the U.S.? The answer is yes, with a caveat. Widespread insourcing–or import recapture, as I like to call it–won’t happen without some help from government policy. In particular, the main role of the government is to provide better data about the relative cost of insourcing vs outsourcing.

Why would better statistics help create new jobs in the U.S. and accelerate insourcing? The reason is hysteresis. Hysteresis is defined as a “lag in response” when the forces acting on a situation have changed. Originally hysteresis worked in favor of keeping jobs in this country, because businesses didn’t want to switch their production to a country thousands of miles away, even if it might be cheaper.But now, with production firmly established in China, India, Mexico, and other low-cost countries, hysteresis is working against the U.S.

Mandel says that the loss of manufacturing ecosystem will make it difficult to bring these jobs back. We have lost suppliers, we have lost some of the "ecosystem" as we "hollowed out" our own manufacturing and our smaller manufacturers will find it very expensive to find the suppliers, etc. if they wish to return manufacturing here. Government can help this by providing better information:

Assuming that production costs really are converging, better information would make it easier for companies to justify the decision to bring jobs back to this country. Right now the safe decision for executives is to continue sourcing from China and India, since they are generally accepted to be ‘low-cost’ countries. It’s like they used to say, you can’t get fired for buying from IBM. It’s the same today–execs can’t get fired for buying from China and India, because everyone assumes that prices are lower there.

In For 2012 Let's Restore Our "Industrial Commons", I explained this phenomenon,

We have been dismantling our "industrial commons." By sending manufacturing out of the country we have been taking apart the supply chains and abandoning the expertise and skills and culture that go with it.

Other Warnings

Last year former Intel CEO Andy Grove sounded a warning about this problem. In How to Make an American Job Before It's Too Late. Grove wrote that we are not just losing jobs to China, we are losing the "chain of experience" that enables new companies and industries to form and to create new jobs and argues for a national economic strategy to preserve our manufacturing and technology base. He lays out a plan: "rebuild our industrial commons,"

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars—fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability—and stability—we may have taken for granted.

We have to start now rebuilding the manufacturing ecosystem - the "industrial commons" that helps us make things here.

61 House Republicans Co-Sponsored China Currency Bill, Now Side With China

Dave Johnson — Wed, 19 Oct 2011 10:40:56 -0400

Last week, in These Are The House Republicans Blocking The Crackdown On China Currency Manipulation. Call Them. I named 61 House Republicans who had co-sponsored the China currency bill, but who now side with China by refusing to help force a vote on the bill. The bill has passed the Senate and Republican leaders are refusing to allow a vote in the House. This bill means jobs. This bill means confronting China over their trade cheating. Call these members of Congress and demand that they side with American workers instead of China.

From last week's post,

We buy a lot from China, and they don't buy much from us. Some call that "trade." The result is that our jobs, factories, companies, industries and wealth are moving to China. One very big thing we can do about this right now is to confront China over their currency manipulation and the Senate passed a bill to do just that. The House leadership, under the control of lobbyists siding with China, refuses to allow the bill to come up for a vote. You can contact co-sponsors of the bill and ask them to sign a "discharge petition" that will make that vote happen.

Why Is This Important?

From Trade Deals Pass Congress -- China Currency Bill More Important Than Ever,

Congress just passed three more NAFTA-like trade deals, so our country's trade deficit is going to get even worse. And pressure on working people to accept pay and benefit cuts and longer and harder working hours is going to get even worse. And the rewards to the top 1%, at the expense of the rest of us, are going to get even greater. But we can still win the fight over China's manipulation of its currency. If we win this it lessens the difference between prices of goods made there and goods made here and can bring some jobs, factories, countries, industries and wealth back to the 99% of our country that doesn't benefit from these trade deals.

... China manipulates its currency to keep it "weak" (low) compared to the "strong" dollar. This means that goods made in China cost much less - up to 40% less - than goods made here, even before any wage differentials, exploitation of the environment, trade cheating, special subsidies and other trade violations are taken into account. China does this in order to capture the jobs, factories, companies and industries that make a country strong. We have let them do this for many years, leading to the economic situation we find ourselves in today.

One reason this continues is that big companies can threaten workers here with moving a job or factory there if they don't go along with big cuts in wages and benefits and working standards -- or just move the factory or company to take advantage of the differential. This benefits a wealthy few in the short term, and China in the long term after those wealthy few have sold the rest of out and cashed out for themselves.

This trade situation with China, while greatly enriching the top 1% here (and there), has hurt the rest of us so much, and drained so much wealth from the country, that even some Republicans are willing to support doing something about it. There are 61 Republican cosponsors of the bill to confront China over their currency manipulation!

The Club For Growth, a Wall Street front-group that backs China's positions on these issues, has demanded that Republicans side with China on this, and has called it a "litmus test." One Republican who actually did sign the discharge petition to force the House to vote, Harold Rogers, was forced by House leadership to remove his name!

What You Can Do

There are 61 Republican members of the House of Representatives who co-sponsored legislation to confront China over their currency manipulation: Currency Reform for Fair Trade Act (HR639). Contact them and ask them to sign the "discharge petition." They are:

Tim Murphy (PA)
Todd Aiken (MO)
Steve Austria (OH)
Lou Barletta (PA)
Brian Bilbray (CA)
Rob Bishop (UT)
Mo Brooks (AL)
Dan Burton (IN)
Shelley Moore Capito (WV)
Howard Coble (NC)
Chip Cravaack (MN)
Rick Crawford (AR)
Charles Dent (PA)
Jo Ann Emerson (MO)
Michael Fitzpatrick (PA)
Randy Forbes (VA)
Jeff Fortenberry (NE)
Jim Gerlach (PA)
Chris Gibson (NY)
Sam Graves (MO)
Morgan Griffith (VA)
Gregg Harper (MS)
Duncan Hunter (CA)
Bill Johnson (OH)
Tim Johnson (IL)
Walter Jones (NC)
Mike Kelly (PA)
Blaine Luetkemeyer (MO)
Steven LaTourette (OH)
Frank LoBiondo (NJ)
Donald Manzullo (IL)
Tom Marino (PA)
Thaddeus McCotter (MI)
Patrick McHenry (NC)
David McKinley (WV)
Patrick Meehan (PA)
Candice Miller (MI)
Sue Myrick (NC)
Tom Petri (WI)
Joe Pitts (PA)
Todd Platts (PA)
Jim Renacci (OH)
Scott Rigell (VA)
Dana Rohrabacher (CA)
Harold Rogers (KY)
Mike Rogers (AL)
Mike Rogers (MI)
Dennis Ross (FL)
John Runyan (NJ)
James Sensenbrenner (WI)
John Shimkus (IL)
Bill Shuster (PA)
Marlin Stutzman (IN)
Glenn Thompson (PA)
Michael Turner (OH)
Lynn Westmoreland (GA)
Ed Whitfield (KY)
Joe Wilson (SC)
Rob Wittman (VA)
Frank Wolf (VA)

These Are The House Republicans Blocking The Crackdown On China Currency Manipulation. Call Them.

Dave Johnson — Wed, 12 Oct 2011 15:08:26 -0400

We buy a lot from China, and they don't buy much from us. Some call that "trade." The result is that our jobs, factories, companies, industries and wealth are moving to China. One very big thing we can do about this right now is to confront China over their currency manipulation and the Senate passed a bill to do just that. The House leadership, under the control of lobbyists siding with China, refuses to allow the bill to come up for a vote. You can contact co-sponsors of the bill and ask them to sign a "discharge petition" that will make that vote happen.

As Steven Capozzola explained yesterday in Why Should Congress Pass China Currency Legislation?,

What few seem to understand is that we are already in a trade war with China. It’s not one that we launched, nor one that we wanted. But China’s undervaluation of its currency, which violates world trade rules, is part of a deliberate, well-coordinated strategy to undercut U.S. manufacturers.

Currency manipulation has helped fuel China’s massive rise as a manufacturing powerhouse. And it’s also helped drive our massive trade deficit with Beijing, which reached a record $273 billion in 2010. This huge trade gap has cost 2.8 million U.S. jobs over the past decade—jobs in every state and congressional district, jobs in manufacturing, jobs in high-tech sectors… It’s a terribly one-sided trade relationship.

How did this happen? China intervenes in the currency market to buy dollars and set its own currency at an artificially low exchange rate. This makes Chinese goods 40% cheaper when entering the U.S. market while making our goods significantly more costly when exported to China.

... This is a bipartisan issue, one that marks a clear chance for Congress to stand up to a very protectionist, predatory campaign. China can purchase dollars, which are freely traded, in order to set its currency peg. But conversely, it is illegal to buy China’s closely held currency.

I wrote yesterday, in Will The U.S. House Side With China On Currency?

If we want to bring jobs and wealth back to the United States for the 99% of us who have been under extreme pressure we're going to have to do something about trade. The huge trade imbalances -- especially with China -- are sucking our jobs and factories and companies and industries and money out of the country. The biggest thing that can be done right now is to take action on China's currency manipulation.

...Speaker of the House Boehner is siding with China and is refusing to allow it to come before the House for a vote. (Reminder to self: do some research into the Citizens United Supreme Court decision enabling foreign money to influence our elections.)

The bill can be forced onto the House floor using a "discharge petition." You can take action to help get Republicans to sign the discharge petition so it comes to the floor. Click here to contact members of Congress and ask them to sign this discharge petition and end Chinese currency manipulation now.

What You Can Do

There are 61 Republican members of the House of Representatives who co-sponsored legislation to confront China over their currency manipulation: Currency Reform for Fair Trade Act (HR639). Contact them and ask them to sign the "discharge petition." They are:

Will The U.S. House Side With China On Currency?

Dave Johnson — Tue, 11 Oct 2011 07:14:24 -0400

If we want to bring jobs and wealth back to the United States for the 99% of us who have been under extreme pressure we're going to have to do something about trade. The huge trade imbalances -- especially with China -- are sucking our jobs and factories and companies and industries and money out of the country. The biggest thing that can be done right now is to take action on China's currency manipulation. Here are two things you can do today.

The Senate votes today on a bill to push back against China's (and a few other countries') currency manipulation, and the bill is expected to pass. The bill also has to pass the House and be signed by the President before it can take effect. CNN explains, in Senate targets China's currency,

For years, U.S. officials have been pressuring China to allow its renminbi -- or yuan -- to appreciate more rapidly. Between 2008 and 2010, China had pegged the yuan to the dollar, keeping its value artificially low and Chinese exports comparatively cheap.

Besides hiking tariffs on Chinese goods, the bill also takes aim at the administration, which already has some ability to point out nations that purposefully manipulate their currency but has avoided doing so.

The bill would:
-- Force the administration to officially red-flag nations whose currencies are undervalued for long periods with the term "fundamentally misaligned currency."
-- Make it tougher for the Commerce Department to ignore calls to investigate accusations of undervalued currencies.
-- Force the administration to give Congress a list of nations with "misaligned" currencies.
And if a nation is accused of having an undervalued currency and makes no effort to rebalance the currency for three months or more, that's when the tariffs kick in.

Jobs And Wealth

It's complicated, but by manipulating its currency instead of letting it "float" to world market value, China can sell goods to other countries at a much lower price than they would cost without the manipulation. In effect China puts its own money into the currency markets, which works out the same as subsidizing the products directly so they have a lower price, in order to get the orders. While this might seem like a dumb thing to do the long-term result is that China is buying themselves a very big chunk of the world's manufacturing business. In the long term this pays off for them in jobs, industries, wealth and power.

And as we now know, the result for us is a big loss of jobs and wealth and factories and companies and industries -- in other words, our ability to make a living in the world.

The House

Even as the bill likely passes the Senate today, Speaker of the House Boehner is siding with China and is refusing to allow it to come before the House for a vote. (Reminder to self: do some research into the Citizens United Supreme Court decision enabling foreign money to influence our elections.)

The bill can be forced onto the House floor using a "discharge petition." You can take action to help get Republicans to sign the discharge petition so it comes to the floor. Click here to contact members of Congress and ask them to sign this discharge petition and end Chinese currency manipulation now.

Tell Congress to stop China's cheating on currency manipulation, which stands in the way of free and fair trade, job creation, and a higher standard of living for millions of Americans.

Click here to see the actual discharge petition.

The President

In his news conference last week President Obama said that China is manipulating their currency but that he doesn't want a law that is just "symbolic." He was not clear about whether he would sign this bill or not, should it pass. He said,

"...China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States. And I have said that publicly, but I've also said it privately to Chinese leaders. And currency manipulation is one example of it. [. . .] My main concern -- and I've expressed this to Senator Schumer -- is whatever tools we put in place, let's make sure that these are tools that can actually work, that they're consistent with our international treaties and obligations. I don't want a situation where we're just passing laws that are symbolic knowing that they're probably not going to be upheld by the World Trade Organization, for example, and then suddenly U.S. companies are subject to a whole bunch of sanctions. We've got a -- I think we've got a strong case to make, but we've just got to make sure that we do it in a way that's going to be effective."

So it is not clear if he intends to sign this legislation. You can sign a petition encouraging him to sign it, should it pass, and take other steps to push China to stop their trade violations. Click the following: WE PETITION THE OBAMA ADMINISTRATION TO: Take Action to Stop China’s Job-Killing Currency Manipulation.

Please take the time to urge members of Congress to sign the discharge petition, and to urge President Obama to sign the bill if&when it passes.

Who Speaks For American Majority On China?

Dave Johnson — Wed, 11 May 2011 14:35:10 -0400

Treasury Secretary Tim Geithner appeared this week on Charlie Rose. Watch as he brilliantly explains why we have to let China continue along its current path. Watching this brings to mind how he so brilliantly advocated for Wall Street and the giant banks. But who takes the side of The American Majority? Who advocates for We, the People?

This week Treasury Secretary Tim Geithner and Chinese Vice Premier Wang Qishan were interviewed together on the Charlie Rose television show:

It was fascinating to watch this interview and gain a little bit of understanding of the mindset of the people who run the world. Geithner was brilliant, and clearly understood the issues, especially from China’s perspective. He so clearly articulated the struggle China faces as it emerges into a leadership position in the world. Geitner is so full of understanding and empathy and advocacy for the Chinese position.

Summarizing Geithner in the interview:

Starting at 7:04:

“They’re moving very gradually because they want to be careful how they do this. … But if you adjust for inflation … it is appreciating more rapidly ... necessary for China … reinforce the strategy … moving carefully [so] they don’t undermine … very encouraging … leadership of China has a very sophisticated understanding of how to balance those forces … they will come to the right judgment.”

11:45:

“Vice Premier was right … Can't look at this economic relationship just through the prism of the exchange rate… 30 years ago started putting in place sweeping reforms to expand the economy … enormously successful … we export more than $100 billion a year to China … of course in the exchange rate the Chinese authorities are moving.”

14:45:

“The Chinese when they make a commitment they deliver on that commitment, and they are moving forward to put those things in place, make sure those things have traction on the ground, and those commitments will endure.”

You can't argue that Geithner was anything but brilliant here, understanding China's emerging role in the world and the internal pressures they are dealing with. It is vitally important that this understanding is conveyed within the administration. But is that really his job?

Adversarial System

International relations is an "adversarial system." In an adversarial system one side fights for its position, the other for its position. And they leave it to the other side to fight for the other side's position. Each side has a responsibility to present their own side's best case. Each side expects and leaves it to the other side to present that side's best case.

An adversarial system falls out of balance if each sides does not meet its responsibility to present its own best case. I think this is what we are seeing now in the U.S.-China relationship. The fact that Geithner understands and empathizes with China's position and approach is great, but when he takes on the role of presenting China's case it leaves no one with the job of presenting ours.

Wall Street vs. Main Street

Since the bailouts it seems that our own Treasury Department has worked hard for the interests of Wall Street and the big banks, but not so hard for the interests of Main Street and the rest of the American people. The people Treasury Secretary Geither has surrounded himself with are seen as advocates for Wall Street and the big banks, and few if any advocate for Main Street. Geithner can often be heard in interviews brilliantly stating the reasons that Wall Street and the big banks do what they do, and the good they do for our economy.

Our Justice Department seems similarly ... uh ... respectful of Wall Street and the big banks. In fact, while the Savings and Loan Crisis led to thousands of investigations and prosecutions, with over 1,000 sent to jail, our current law enforcement mechanisms have become so respectful and understanding of Wall Street and the big banks that there have been ... uh ... well there haven't been hardly any ... but I'm sure you understand and respect their decision.

“Captured” is the word that comes to mind.

The American Majority Position

According to polls, The American Majority position is at odds with the things Geithner appears to be advocating for. People want us to confront China and impose a tariff on goods from China if they don't change and change fast. Who advocates for the American People in this confrontation?

Last years' Alliance for American Manufacturing (AAM) poll found that:

A majority believe the U.S. no longer has the world’s strongest economy, with China our chief competitor
Goods manufactured in China and companies that move there are extremely unpopular
We should impose tariffs on products from China unless it stops cheating on its trade commitments to the

United States

An April 1 Gallup poll, headlined, Americans' Top Job-Creation Idea: Stop Sending Work Overseas that asked Americans to offer their own ideas for creating jobs found that about 25% of respondents chose the "no outsourcing" option as their key choice, double the next two most popular choices of "creating more infrastructure work" and "lowering taxes."

US-China Strategic and Economic Dialogue Concludes

This week's this week's US-China Strategic and Economic Dialogue has concluded. AAM's ManufactureThis blog sums up ,

Begninning the summit with high hopes (NYT), the U.S. and China made progress on talks (Reuters), including an end to China’s illegal subsidies (The Hill) . But still, no progress on currency (WaPo).

AAM's Scott Paul, on the summit:

"The Chinese regime accomplished its main objective of the talks: to avoid any consequences for its harmful, mercantilist economic policies. With only two more sessions of the S&ED likely to take place prior to the 2012 U.S. elections, I suspect that Beijing's strategy will be to run out the clock.

"I doubt if the communique will be worth the paper it is printed on because it lacks objective criteria and an understanding of what the consequences will be if China fails to honor agreed-upon international norms on trade, exchange rates, and investment.

"Our trade deficit with China was a record $273 billion last year. We have seen high monthly bilateral trade deficits this year. Why are we not making any progress? It's precisely because the focus of these talks will not budge that statistic. Serious changes in exchange rates, eliminating state subsidies, and a move by China to raise interest rates and wages will move the trade deficit down. But the Administration's tactic on these issues has been to raise them politely and then to move on.

"For the millions of American workers and businesses facing state-supported competition from China, that's simply not good enough. Sure, we can be polite with China, but we also need to be firm. And that is what's missing right now."

China Tells US To Mind Our Own Business – And We Should

Dave Johnson — Fri, 06 May 2011 14:47:39 -0400

China's Vice Finance Minister lectured US administration officials about our debt and told us to mind our own business when it comes to China's currency manipulation. It is about time the United States started minding our own business by taking steps to protect our business and bring manufacturing and jobs back home.

Leading up to next week’s US-China Strategic And Economic Dialogue, China's Vice Finance Minister Zhu Guangyao butted into our business and told the US we should reduce our debt. He also told us to keep out of their business and not bother them about their currency manipulation. In the story China Paying ‘Close Attention’ to U.S. Debate on Increasing Debt Ceiling, Bloomberg News reports,

“We are paying close attention to the domestic discussion in the U.S. on debt and deficits,” Zhu told reporters in Beijing today. “We hope the U.S. can take effective measures toward fiscal reorganization just as President Obama suggested.”

[. . .] Zhu also said that currency policy is the “sovereign right” of every country.

China says currency manipulation is their "sovereign right." They say we should mind our own business. But they insist that "free trade" means America does not have a right to mind our own business and protect our own workers, companies and jobs.

It's Time To Mind Our Own Business

It is time to finally mind our business and take action. For decades the United States has refused to mind our business by pursuing "free trade" policies that allow other countries to engage in all kinds of trade schemes, while we just sit back and let them. Our leaders have not protected American workers, companies and jobs, instead sending them out of the country. We are told that the resulting "low prices" at Wal-Mart justify letting manufacturing move out of the country,

It is time for us to mind our business, and engage in our own sovereign duty to protect American companies, workers and jobs from the trade manipulations and schemes others engage in. It is time to hold countries like China and Germany accountable for the damage done to our businesses by their mercantilist trade policies. Trade barriers, currency manipulation, even outright extortion - demanding that our companies transfer proprietary technologies and processes if they want to do business selling into other countries - has cost us factory after factory, job after job and company after company.

As an example of how this has worked, in 2008 George Bush made the following argument for a trade treaty with Columbia,

In other words, the current situation is one-sided. Our markets are open to Colombia products, but barriers exist to make it harder to sell American products in Colombia.

I think it makes sense to remedy this situation.

President Bush wasn't saying he was going to do something about the one-sided arrangement and hold Columbia accountable, he was saying that since we just let Columbia do this to us, therefore we need to reward them with a free-trade treaty that gus American jobs even more! But why not just mind our business and stop it? All we really have to do is tell Columbia we are going to do what they do, until they stop doing that, start paying workers a decent wage and protecting their safety and rights.

Why China Really Cares

The fearmeisters say China is concerned that we might not meet our debt obligations. This is not at all what China is concerned about. China holds $1.15 trillion in Treasuries, accumulated as they sell goods to us, and don't let us sell goods to them. What they are concerned about is that our currency might drop, which will help bring factories and jobs back to America. From the Bloomberg story,

“Reduced U.S. fiscal spending may lead to a higher possibility of the U.S. dollar appreciation, therefore it helps China to maintain the value of the U.S. debt it holds,” said Li Jun, a Shanghai-based strategist at Central China Securities Holdings.

Their concern about our debt is really just about keeping their currency low, which gives goods made in China a huge price advantage in world markets.

Let Trade Be Trade

It is time to mind our business and mind our businesses. It is time to take action on mercantilism and currency manipulation. It is time to stop China and others from flooding our markets with goods made without the wage, safety and environmental protections that democracy provides.

Let trade be trade. Trade is supposed to be about trading. It is not supposed to just be a scheme to drive wages and living standards down by packing up factories and moving them across borders. It is not supposed to be "take a pay cut and a cut in benefits or we'll move your job." It is not supposed to be "well, we have something called globalization now so everyone should expect to be poorer and poorer every year."

Trade is supposed to be we buy what they make and they use the money we pay them to buy things we make. And then we use the money they paid us to buy things made there. And then they use the money we paid them to buy things made here. It is supposed to go on like that, and everyone does better and better. Better and better, not poorer and poorer.

It really is time to mind our own business and tell countries that can't sell to us until they meet our conditions. Which is just what they do to us.

China Summit : Let Trade BE Trade

Dave Johnson — Thu, 05 May 2011 14:15:14 -0400

Since China’s admission into the World Trade Organization we have been packing up our factories and sending them over there. We have been buying so many things made in China, but they have not been buying very many things made here, and the resulting “trade deficit” has gotten worse year after year. Everyone is afraid of what China might do with all those trillion$ in US Bonds they have accumulated. We are told to be afraid, that we need to cut Medicare and Social Security and unemployment benefits and all the other things We, the People do for each other, and learn to be poor. There is a better way to solve the problem: let trade BE trade.

Trade Should BE Trade

Trade is supposed to be about trading. It is not supposed to just be a scheme to drive wages and living standards down by packing up factories and moving them across borders. It is not supposed to be "take a pay cut and a cut in benefits or we'll move your job." It is not supposed to be "well, we have something called globalization now so everyone should expect to be poorer and poorer every year."

Let Me Take Your Order, Please

So here is an idea for next week’s US-China Strategic And Economic Dialogue. Last year we "raised issues" and signed various memorandums of understanding but nothing changed. This time we have to stop putting off what has to be done. This time, let’s tell China that from now on trade will be trade.

Here is what I mean:

When the meeting begins Secretaries Clinton (State) and Geithner (Treasury) and Locke (Commerce) should slide a big stack of order forms across the table and say, "Your turn. Let us take your orders now, please."

That is what China can do with all of those US Bonds they have been accumulating. They can start trading, which means buying things from us. And we should say that those things should be things, not companies or farms or real estate or more factories. Our government should make it clear that it is their turn. It is time for trade to BE trade. And if not, we will put a big tariff on goods made in China until it is.

Conditions

We need to put a few conditions on the deal. Just like they do. They have not been trading with us, they have been seizing the means of production. There is a long list of schemes and manipulations and conditions China uses to rig the game, and it is time to stop this nonsense.

The main unfair tactics China uses to its advantage:
1) Currency manipulation. China "pegs" its currency at a very low, or "weak" rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression, which has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) Massive direct government subsidization of export production in many key industries.
4) Environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy, which mean that American products that could be sold are stolen instead.
6) A number of policies that block U.S. firms from market access.

It is necessary to bring their currency to market rates, but this is not all that must be done to bring trade into balance. It helps; it doesn’t fix it.

Do What They Do

In our scenario our administration has handed a stack of order forms to the Chinese delegation, and said, "We're ready to take your order now." Tell them the deal for cashing in those bonds -- and continuing to sell to us without big tariffs -- is that China has to actually trade with us, and spend all of those accumulated bonds on goods made here. (I guess if they can tell Social Security recipients that their bonds have been spent they can set conditions on China cashing in theirs... right?)

We don't make that here anymore, you say? Well, here is a solution to that, too. We can just do what they do. We can say, you have to build a plant here that does that. And you have to "partner" with an American company before you can even do that. And you have to transfer your technology to that company. And after a few years your company goes away and the factory and the technology and the market will be ours.

Believe it or not, that is what they say to our companies, and for far too long our government has let them get away with that. So along with the stack of order forms, they can tell China that we are going to start doing what they do. Go down the above list, point by point, and just do what they do. Leave out the labor-suppression and environmental degradation parts.

We Can't Just Go Back To The Old Way

There are huge interests here and in China who have done very well because of the "trade" policies of recent years. With the economic crisis heading into the past they are pushing very hard to just go back to the way things were. Of course they are. And they are very, very powerful. The Chamber of Commerce runs hundreds of millions of dollars of campaign ads urging us to just go back to doing the things that brought them so much wealth and power. In China those who accumulated great wealth and power from these schemes are fighting hard to just keep it going. The imbalances have been just great for them, and they use the resulting wealth and power to push for more.

But the resulting imbalances have been terrible for everyone else in the world. The imbalances have drained wealth and power from everyone else in the world. Can everyone else in the world overcome this or are we all helpless against the onslaught?

Or do we have to wait for the next crisis to completely destroy everything and rebuild from there?

US-China Strategic and Economic Dialogue Next Week

Dave Johnson — Tue, 03 May 2011 13:19:15 -0400

Next week, May 9 and 10, the US-China Strategic and Economic Dialogue will take place in Washington DC. Since 2009, high-level representatives of the US China, with their delegations, meet each year at one then the other capital. Let's see if the administration will take on China's mercantilist policies in an effort to start bringing back factories and jobs -- and rebalancing the world's economy.

This is the third such meeting. Prior meetings have been useful with the countries signed various memorandums of understanding, but the big kahuna of actually doing something about the massive imbalances that continue to destabilize the world’s economy has not yet been tackled.

The trade imbalances resulting from China's ongoing efforts to grab the world's manufacturing business continue. The world's economy has gotten through the worst of the financial crisis but as we go back to the same old ways of things that didn't work we only set the stage for worse.

China cheats. This advantages from this cheating bring them increasing wealth and power which are used to discourage a response to their cheating. And inside the affected countries there are internal groups benefiting from the imbalances, bringing them increasing wealth and influence to discourage their governments from confronting the situation. (You know who you are.) Low wages and short-term profit at the expense of a long-term sustainable economy might be good for some, it is terrible for most.

The public understands that our trade relationship with China is a problem. People want to buy things made here and want jobs making things here. We want our factories and jobs back. It's that simple and the public gets it. The coming election will hinge on jobs and jobs hinge on responding to China.

The world is still out of balance. Our economy is still out of balance. The problems are not going to get better by themselves. Simply putting off the things that have to get done allow the imbalances to worsen.

Stay tuned -- I'll be going into detail as this economic dialogue approaches and proceeds.

China Currency Manipulation Equals China Inflation

Dave Johnson — Fri, 21 Jan 2011 14:08:50 -0500

Schemes and scams unravel, usually badly. China has been manipulating its currency, causing economic imbalances on a scale the world has rarely if ever before seen. The consequences are causing inflation problems inside China. One way or another this is going to adjust and China has to find a way to keep it from exploding.

Chinese people are feeling the inflation. This segment yesterday on Marketplace, for example,

Wang's 39. He assembles furniture at a warehouse for $500 a month. Half of that goes to rent for a bed in a crowded room; the other half to his family. But lately, he's set more aside to cover the rising cost of food. Rapid inflation makes him wonder what how he can go on.

Yesterday on the PBS Newshour, a segment Amid Hu's U.S. Visit, How Do China's Youth View Rest of World?, talking with Chinese students,

(Note, if the video isn't working you can watch it here.)

"When others see China, they see, oh, 8 percent per year, but when the Chinese see itself, they see unemployment, they see inflation, they see the rising costs of households."

Paul Krugman today, in China Goes to Nixon, lays it out,

In fact, Chinese currency policy is a lose-lose proposition, simultaneously depressing employment here and producing an overheated, inflation-prone economy in China itself.

One way to think about what’s happening is that inflation is the market’s way of undoing currency manipulation. China has been using a weak currency to keep its wages and prices low in dollar terms; market forces have responded by pushing those wages and prices up, eroding that artificial competitive advantage. Some estimates I’ve heard suggest that at current rates of inflation, Chinese undervaluation could be gone in two or three years — not soon enough, but sooner than many expected.

China’s leaders are, however, trying to prevent this outcome, not just to protect exporters’ interest, but because inflation is even more unpopular in China than it is elsewhere. One big reason is that China already in effect exploits its citizens through financial repression (other kinds, too, but that’s not relevant here). Interest rates on bank deposits are limited to just 2.75 percent, which is below the official inflation rate — and it’s widely believed that China’s true inflation rate is substantially higher than its government admits.

Rapidly rising prices, even if matched by wage increases, will make this exploitation much worse. It’s no wonder that the Chinese public is angry about inflation, and that China’s leaders want to stop it.

China's currency scheme is unraveling and China's government is trying to manage the internal pressures. But for who? Interests in China that have become wealthy use their increased wealth and power to influence policy to keep the good stuff flowing their way by keeping restrictions on imports. American multinationals use their wealth and power to push for lower wages.

Our government is supposed to be a countervailing power that speaks for We, the People and American workers. So our government should be pushing for China to stop restricting imports, stop manipulating currency and open up freedoms for Chinese workers to bargain for higher wages. The way to do this is to ask Chine nicely (done this, decades...), send them sternly worded letters (done this, no effect), demand changes (done this, no effect) and finally impose sanctions that restrict the imports into our markets until we have a level playing field.

The China Currency Battle

Dave Johnson — Wed, 19 Jan 2011 14:38:30 -0500

As Chinese President Hu Jintao visits Washington one subject being discussed is China's currency manipulation. China keeps its currency "weak" because it mean goods made in China have a huge price advantage in world markets. This is part of a larger national strategy to take over key strategic industries. This video, How Currency Choices 'Made in China' Have Big Impact on U.S. Economy, aired on Tuesday's PBS Newshour and explains how and why China does this:

(Note - if video is not working, you can see it here.)

Good For China, Bad For Everyone Else

China's currency manipulation -- just one part of its larger national industrial/economic strategy -- has paid off handsomely for China as a country and for those Chinese who have benefited from these policies. By keeping the price of goods made in China so low they have attracted one after another factory, then company, then entire industries.

But China's mercantilist policies have created huge imbalances in the world's economy. Low growth and joblessness in countries that have lost factories and industries is causing disruption. Inflation is a growing problem inside China. World pressure is increasing. And China's enormous trade imbalance with the United States is a key part of our own economic troubles.

You Can't Trade Chinese Currency

If the playing field were level China's currency and the resulting pressures would adjust through market trading. As China's economy strengthens more people and companies would need to purchase their currency for all kinds of reasons. The resulting greater demand would drive up its price, making their currency "stronger." Right now, knowing that the currency is 30-40% misaligned it would make sense for people to just take money out of the bank to buy Chinese currency and wait, gaining that 30-40% when it adjusts.

But you can’t. China does not allow its currency to be traded. That is part of the manipulation scheme. You cannot buy Chinese currency, so market pressures cannot force an immediate adjustment. Instead these pressures just build.

Adjustment That Is Not Adjustment

Lately, though, China has been loosening up a bit. For example, you can actually open an account at the Bank of China's New York Branch. You put dollars into the account (up to a low limit) but while your money is in the account it is valued in Chinese currency. So as the money sits in the account its value fluctuates against the dollar. When you take your money out, it is still the same amount in Chinese currency but because of fluctuations in China's currency that translates to more or fewer dollars than you put in. Since China's currency is greatly undervalued, it will almost certainly adjust upwards and you will be taking out more dollars than you put in. (Investment advice: do it.)

In response to world pressure and this slight loosening China's currency is adjusting slowly, rising by 3-5% against the dollar. But this adjustment is very likely the amount that natural forces would have appreciated their currency anyway in this time frame. Even if China's currency was currently in balance it would adjust 3-5% anyway. This means it starts 30-40% out of balance and the imbalance is still 30-40% after this adjustment. So this level of adjustment is really not correcting the larger imbalance at all.

Adjusting Too Fast Is Dangerous

China's currency is adjusting too slowly to make a difference. However, very rapid changes would mean trouble for everyone. This is a huge, dangerous bubble on a scale comparable to or even worse than the housing/Wall Street bubble that nearly destroyed the world economy when it burst. A rapid adjustment would just create different, huge problems. For example, we have given up much of our advanced manufacturing, especially in electronics and cannot just start again without rebuilding the infrastructure of tools, expertise, supply chains, etc. So with a rapid currency adjustment we would have to pay much higher prices for things until we could make them here again. And China has raised expectations of improvement in their population, so a rapid adjustment and resulting loss of employment improvement would cause tremendous social disruption for them.

Certainty Is Needed

The solution is to have clear policies that guarantee China's currency adjusts to market levels over a period of time. This must be accompanied by a guarantee to bring their trading policies to a level playing field. And if China refuses to coopreate the American government must implement and enforce policies that force these changes. Once American business leaders understand with certainty that they party is over and goods from China are going up in price they will begin the process of rebuilding our manufacturing infrastructure in order to be ready. And China would be forced to implement internal policies that get them ready.

Selling China The Rope

How did all of this misadjustment come to pass? How did we allow this huge bubble to build up? How did China go all these years with policies that let them capture so many jobs, factories, businesses and key industries?

The difference: China has a national strategy and we do not. They look at the overall, longer-term picture, seeing themselves as a country of people with a common interest. We do not. They understand that attracting industries to China is good for China and its people in the long term. We do not. We follow an ideology that says that the interests of individual companies and a few wealthy people are the same as that of the country-at-large, and if companies can make larger profits in the short term and a few people can get wealthy closing factories and moving them to China that's just fine, even if it means a loss of jobs and of the country's overall ability to make a living in the long term. Our "free market" ideology conveniently leads to great wealth for a few at the expense of the rest of us and our future. And, as always happens, the beneficiaries here and in China use their increased wealth and power to influence policy to keep the good stuff flowing their way. We don't learn the lessons of history, they don't forget.