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Working In These Times

Friday, Oct 8, 2010, 8:59 am

China ‘Currency War’ Hints at Growing Labor Tensions on Both Sides

BY Michelle Chen

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Workers gather for a morning briefing in Foshan, China on June 18. The day before, 1,850 workers in the province’s Honda factory participated in a massive walkout, crippling production to protest low wages.   (Photo by STR/AFP/Getty Images)

China's got the world on a string, tethering countries rich and poor to its global export machine. But the impending showdown over currency exchange rates is stretching tensions between Washington and Beijing in a proxy battle between America's addiction to cheap imports and the pain of the unemployment crisis.

Organized labor and left-leaning economists have long accused Beijing of“cheating” by systematically manipulating its currency.  Though exchange-rate games are by no means limited to China, many in Congress want to cajole Beijing into readjusting the yuan, thereby relinquishing some of its trade edge and easing the U.S. job losses driven by China's cheap labor costs.

Though the media debate seems dominated by Politburo technocrats versus unions and Democrats, it's not just American workers who have a stake in the issue; Chinese workers also have much to gain (and lose) from reshaping the economic playing field.

Many China-watchers warn that the Chinese economy's future stability hinges on promoting sustainable levels of consumption, rather than simply relying on cheap exports. Some say China's enforced economic isolation is chafing against the expanding aspirations of the country's upward striving working class. Moreover, there are signs that China's exploitable migrant labor pool isn't as bottomless as once thought, as we saw with the strikes and protests waged by factory workers last summer.

According one analysis in Foreign Policy, China's capitalist-transition-ala-carte model is fraught with “attendant imbalances.” suppressing personal consumption and small-scale entrepreneurial activity in favor of state-owned enterprises and select multinationals, China's 1990s growth did not sufficiently benefit its citizens.

But the central government may finally be wising up to the needs of consumers and workers:

With the global economy now out of free fall, China's leaders have issued a comprehensive slate of reforms to foster consumption and curb excessive capital investment.... new pension schemes, health-care coverage, and even a budding tolerance for collective bargaining with underpaid workers are intended to boost consumption.

American workers suffers a contrasting dilemma: an economy driven by consumption as opposed to production, while both consumer spending and jobs have collapsed in the recession.

Understandably frustrated, unions have fixated on currency as a lever for rebalancing trade and bringing back jobs. Opponents theoretically could counter that the jobs gained by the U.S. would be China's loss, which would in turn hurt Chinese workers and spark unrest. But it's not a zero-sum game, argues Robert Scott of the labor-backed Economic Policy Institute. In response to economist Robert Reich's skeptical view of the risks of currency warfare, Scott writes:

...revaluation would be good for China's workers in several ways. It would raise real wages, allowing them to purchase more imports and enjoy the fruits of their labors. It would put downward pressure on Chinese inflation. It would also force China to invest more in infrastructure and the social safety net. This would create the domestically-oriented growth needed to sustain China's development while providing its citizens with the public and social services (e.g., housing, transportation, safe water and waste disposal) that they need and deserve. It will also reduce pollution and China's growing demand for energy and other materials needed to fuel its export engines.

But Reich does make a vital point about how recalibrating currency won't solve underlying macroeconomic challenges and may bring more economic risk.

What worries me most about all this tough talk about China is it diverts attention from the real problem. American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy.

Twenty million Americans lack jobs because American consumers – especially America’s vast middle class – can no longer spend what’s necessary to keep nearly everyone employed.

From a global labor standpoint, William Nee at China Labour Bulletin told In These Times that trade imbalances and job competition could be addressed with policies that empower Chinese workers:

giving workers more collective power – through the mechanism of collective bargaining – could help increase workers wages and give workers a greater ability to consume.  As consumption increases, it could help create a bigger middle class, which could in turn help decrease the trade deficit and benefit American exporters and manufacturers.  So, indeed, giving Chinese workers more leverage could be in the best interests of American workers as well.

In the cutthroat international trade area, it's easier for union chiefs and lawmakers to fume about small-town U.S.A. losing jobs to Shenzhen than it is to say, buckle down and craft a comprehensive plan to revitalize domestic manufacturing.

Likewise, it's easier for Beijing to buoy growth through currency tweaking than to undertake deeper structural reforms. Finding the right economic balance will elude both nations until they start putting labor at the heart of their national agendas. In the pursuit of a fairer economy for both sides, the political crisis of currency shouldn't distract from real crises facing the workers who, at the end of the day, will take those dollars and yuan home in their pockets.

Michelle Chen is a contributing writer at In These Times and The Nation, a contributing editor at Dissent and a co-producer of the "Belabored" podcast. She studies history at the CUNY Graduate Center. She tweets at @meeshellchen.

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