Seeking a Trade Rule Enforcer

Leo Gerard, United Steelworkers President

China has depressed the value of the yuan by aggressively buying up U.S. dollars and other foreign exchange reserves, according to the Economic Policy Institute.

America is being played.

The U.S. allowed China to join the club of trading partners in the World Trade Organization (WTO) in 2001 under the condition that China observe club rules.

Over the past decade, however, China has profited immeasurably by ignoring, flouting and circumventing the rules barring market-distorting practices. Among the most destructive of these violations is China’s deliberate undervaluing of its currency, which makes Chinese exports to the United States artificially cheap and U.S. exports to China artificially expensive.

This nurtures Chinese industry and poisons American manufacturing.

In the trade contest with China, the referees have been absent or silent or completely craven on the issue of currency undervaluation, even as it kills U.S. factories and jobs. American workers need a trade rule enforcer. With unemployment above 9 percent, the situation is desperate. American workers can’t be played anymore.

Just last week, the Economic Policy Institute (EPI), a non-partisan think tank, issued a report showing that the trade deficit with China cost the United States 2.8 million jobs since the WTO allowed China into the trading club. Every congressional district in the U.S. lost jobs as Chinese exports to the United States overwhelmed U.S. exports to China.

The trade deficit is the difference between the value of Chinese exports to the United States and U.S. exports to China. It was $84 billion the year China entered the WTO. Last year it grew to $278 billion – a 230 percent increase.

EPI also determined that China’s currency manipulation is a major cause of the trade deficit. The report explains that China has aggressively bought U.S. dollars and other foreign exchange reserves to depress the value of the yuan. Smart move, but prohibited under WTO rules.

Without this deliberate market interference, the yuan would have risen in value over the years as China’s productivity soared. But a stronger yuan would have increased the cost of Chinese products in the U.S. and decreased the cost of U.S. exports to China. That would have quashed Chinese exports and invigorated American exports, lowering the trade deficit.

The currency manipulation is not surprising considering China’s other routine trade-distorting and rule-violating practices. These include giving government subsidies to factories that export. WTO rules permit governments to subsidize manufacturers that sell only within their own countries. But subsidized products can’t be exported because the government aid artificially lowers prices, which wrongly propels them ahead of unsubsidized products on the international market.

Developing countries often violate the rule anyway. They game the system. Everyone wants a leg up. It has served the Chinese economy and the Chinese people well. Progress for third world workers is to be celebrated. But it’s unjust when a country accomplishes it by defying rules it pledged to follow.

The United States has repeatedly imposed tariffs on China for exporting improperly-subsidized products. For example, my union, the United Steelworkers, filed a case seeking relief from subsidized Chinese passenger and light truck tires sold in the United States. Both the U.S. International Trade Commission and the U.S. Department of Commerce determined China breached the trade rules, and President Obama imposed tariffs on imported Chinese tires for three years. When China appealed the tariffs, the WTO concluded that Obama was right.

That’s enforcement.

And the result is that tire companies now are spending hundreds of millions to expand U.S. operations and hiring hundreds of U.S. workers.

But when it comes to currency manipulation, the U.S. government is all threats and no enforcement.

The U.S. Treasury Department has considered officially designating China a currency manipulator, a finding necessary before commencing sanctions. But it never did. The U.S. house and senate considered legislation but failed to pass it. And Obama asked China to allow the value of its currency to float up naturally. In June of 2010, China said it would.

But it hasn’t.

It’s more than a year later, and maybe another hundred thousand U.S. jobs lost. Washington seems to be listening only to greedy reactionaries who contend sanctions will spark a trade war.

They’re wrong. Every time the USW wins a trade case – including the tire case — the reactionaries have wailed that the tariffs will prompt a trade war.

China won’t do it because the value of Chinese exports to the United States is four times that of American exports to China. China faces four times the risk in a trade war. The greedy reactionaries consist mainly of multi-national corporations that have outsourced production and jobs to China and are concerned only with profits and totally unconcerned about the U.S. economy and unemployment.

Another EPI study released earlier this year showed that if China and other Asian countries properly valued their currencies, as many as 2.25 million jobs would be created in the United States and the U.S. budget deficit would decline by up to $71.4 billion per year.

More jobs; lower debt – that’s why a bipartisan group of U.S. senators and congressmen introduced legislation last week to enable the U.S. Treasury Department to more easily declare a country deliberately undervalues its currency and to punish manipulators.

There can’t be any more dawdling or cowering or negotiating on this. American workers need enforcement now.

This post originally appeared at USW’s blog, and is reprinted with permission.

Leo Gerard is international president of the United Steelworkers Union, part of the AFL-CIO. The son of a union miner; Gerard started working at a nickel smelter in Sudbury, Ontario, at age 18, and rose through the union’s ranks to be appointed the seventh international president Feb. 28, 2001. For more information about Gerard, visit usw​.org.
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