Scott Paul in the Washington Post: How to deal with China’s currency manipulation

Posted by scapozzola on 09/06/2011

The Washington Post recently suggested that potential U.S. legislation to address China's continuing, illegal currency manipulation is a bad idea.  The Post says any such bill would not be a "practical alternative to the Obama administration’s policy of patient jawboning."  As proof that China listens to U.S. pleading, the Post praised Beijing for "allow[ing] its currency to appreciate against the dollar by about 9 percent over the past year."

The Post also worries that Beijing might retaliate against the U.S., "costing American growth and jobs."

Alliance for American Manufacturing (AAM) Executive Director Scott Paul vehemently disagreed with the Post's assessment and published a letter-to-the-editor today to set the record straight:

Letter to the Editor

How to deal with China’s currency manipulation

The Aug. 31 editorial “Breaking China?” made several dangerous suggestions about China’s job-killing currency manipulation policy.

Crediting China for a “9 percent” appreciation is nonsense. The Peterson Institute for International Economics reports that the yuan is more undervalued today (28.5 percent) than it was a year ago (24.2 percent).

The Currency Reform for Fair Trade Act does not mandate sanctions against China or any other nation. Rep. Dave Camp, the Republican chairman of the House Ways and Means Committee, who has supported the measure, said that the bill does not “presuppose an outcome,” but rather sends “a clear signal to China that Congress’ patience is running out, without giving China an excuse to take it out on U.S. companies and their workers.”

Addressing currency manipulation would help to reduce our massive $273 billion annual trade imbalance with China and could, according to the Economic Policy Institute, create as many as 2.25 million U.S. jobs while reducing our budget deficit by $71.4 billion annually.

History shows that China reacts only to political pressure and the threat of real consequences, which is why Congress should approve legislation on currency manipulation as soon as possible.

Scott N. Paul, Washington

The writer is executive director of the Alliance for American Manufacturing.

1 comment

Anonymous wrote 2 years 46 weeks ago

The U.S. Trade Deficit - America’s Leak-in-the-dike!

Our trade deficit is America’s leak-in-the-dike; as a result, any favorable effects of tax-cut stimulus, monetary easing or spending stimulus have been grossly disappointing.

In Chapter 19 of his 1817 classic, On the Principles of Political Economy, and Taxation, David Ricardo warned that, war, the removal of capital and a new tax are destroyers of the comparative advantage which a country before possessed in manufacturing. A discussion of war and the removal of capital is for another post, which this post will focus only on changes, of the last two decades, which are or act like a new tax (de facto tax) and have contributed to the destruction of the comparative advantage which the United States before possessed as an exporter. The changes have not arisen by actions of the U.S. Government but by actions of our trading partners; however they continue because of inaction by our Federal elected leaders to appropriately respond to them. Since the mid-1990’s the following changes have occurred:

- A change that has the effect of a new tax, namely China's manipulation of the U.S. Dollar; which acts as a tax on all U.S. exports and a reverse-tax on all imports coming into the U.S.

- The enactment of value added taxes (VATs), by an increasing number of our trading partners at gradually higher tax rates, which tax U.S. exports.

The first change, which dates back to 1995, is China's pegging its currency to the U.S. Dollar, in form this is not a tax, but in substance acts as a tax on all U.S. exports to all U.S. Trading partners, not just exports to China. During the most recent “China U.S. Dollar Peg”, namely from July 2008 Through June 2010, total U.S. Exports were $3.508 trillion with exports to China being $145 billion. An over-valued Dollar was almost 14.9 times more damaging to U.S. exports than if the Renminbi was only kept undervalued.

The second change is the significant increased number of U.S. Trading partners that have enacted Value-added taxes and dramatic increase in the dollar volume of U.S. exports subject to VATs. In 1990 U.S. exports were subject to consumption taxes levied by about 45 U.S. Trading partners but by 2010 all but about 20 U.S. trading partners levied their consumption taxes, averaging 17%, on over $ 1.280 trillion of U.S. exports. The United States Government levies no Federal consumption tax on the over $ 1.948 trillion of exports into the U.S.

The unresponsiveness of U.S. political leaders to these changes that David Ricardo, the father of classical political economics, warned; has subject U.S. businesses and workers to a similar plight as the frog in the boiling water parable.

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