Chinese Currency Manipulation Hurts US Exports

By Heide B. Malhotra
Heide B. Malhotra
Heide B. Malhotra
September 28, 2010 Updated: October 1, 2015

The Chinese regime continues to manipulate the yuan/dollar rate to China's advantage. (AFP/Getty Images)
The Chinese regime continues to manipulate the yuan/dollar rate to China's advantage. (AFP/Getty Images)
WASHINGTON—China’s undervaluation of its currency—especially against the dollar—has taken the main stage as U.S. lawmakers and economists are calling for action amid a backdrop of tepid U.S. economic expansion.

“For far too long our government has tried ‘quiet diplomacy’ to address currency manipulation. This approach has failed,” testified Daniel R. DiMicco, president and CEO of steelmaker Nucor Corp., during a September congressional committee.

China flatly denies that its currency manipulation undervalues the renminbi (yuan) by 40 percent and has become one of the foremost impediments to fair and equitable global trade, experts say.

“That undervaluation of the renminbi acts as a subsidy for Chinese exports, artificially making them as much as 40 percent cheaper when sold in the U.S. Conversely, it acts as a tax of as much as 40 percent on American-made goods sold in China,” according to a recent article on The Hill’s Congress Blog.

The Congress Blog accused the Department of Commerce of sidestepping the currency manipulation issue when it assessed import duties of $514 million in subsidized aluminum products from China in 2009.

“Commerce refused to investigate the Fair Trade Committee’s evidence that China’s currency manipulation functions as an additional illegal export subsidy,” according to The Congress Blog.

Letting China Play the Game to the Hilt

On June 19, The People’s Bank of China (PBOC) announced increased flexibility of its currency, just a week before the G20 Summit, without providing any details.

“Commentators have rightly characterized China’s move as a ‘canny’ and ‘deft political move’ for numerous reasons. First, the announcement by the PBOC came one week before the G20 Summit. … Second, there is no concrete plan of action for implementation of the change,” said the Center for International Finance & Development in a June discussion paper.

U.S. corporations were watching closely midyear, hoping that the Treasury Department would label China a currency manipulator in its latest report on international economic and exchange rate policies, according to a number of experts.

“I continue to be confused by the Administration’s reluctance to take action. Labeling a country as a currency manipulator does not require draconian action under the Omnibus Trade and Competitiveness Act,” testified Sen. Richard Shelby, R-Ala., in his mid-September testimony before the Senate Banking Committee.

Under the Omnibus Trade and Competitiveness Act of 1988, the U.S. Treasury Secretary must report biannually on exchange rate policies of U.S. trading partners that have large trade surpluses with the country. The Treasury has to evaluate if unfair trade advantages exist.

Treasury stopped short of taking China to task in its most recent report, despite being tasked under existing law to identify countries that manipulate its currency in an effort to gain a competitive advantage.

“There is no question that China manipulates its currency in order to subsidize Chinese exports. The only question is: Why is the Administration protecting China by refusing to designate it as a currency manipulator?” Shelby asked.

Treasury Secretary Timothy Geithner stated during his confirmation hearing that President Obama understands clearly that China is manipulating its currency. Members of the Senate Finance Committee took this as a turning point with regard to soft pedaling China’s aggressive trade policies. But again disappointment set in.

“Unfortunately, once in office, the Administration showed that it was all bark and no bite,” Shelby said in his testimony.

Shelby then said that the administration unfortunately preferred to play underdog with the Chinese instead of taking the livelihood of the American worker to heart. “American workers got the short end of the stick,” he said.

Congress Gets Into the Act

In March, a bipartisan group of 18 U.S. senators introduced the Currency Exchange Rate Oversight Reform Act of 2010 to address China’s currency manipulation. Within it are a number of tough remedies, including limits to a presidential waiver of proposed actions.

“China has been allowed to develop an unfair advantage while going virtually unchecked. A comprehensive approach is required to level the playing field,” said Sen. Bob Casey, D-Pa., in a press release.

U.S. lawmakers introducing the legislation spoke harshly of currency manipulation, addressing not just China, but other nations that use this tool to gain an unfair advantage over their trading partners. Sen. Sherrod Brown, D-Ohio, called currency manipulation “cheating.”

The lawmakers agreed that unless Congress takes strong action and forces the administration’s hand, any currency manipulator will not be called to task, and American exporters will continue to be at a disadvantage as cheap imports flood the country.

According to the testimony of Rep. John Boccieri, D-Ohio, America lost between 1.5 million and 3 million manufacturing jobs because they couldn’t compete with China’s undervalued currency.

Boccieri called for the United States to not just call for an end to unfair trade practices, but to aggressively combat them similar to how illegal dumping and subsidies are treated. With respect to China, America must call them to the table openly and not only behind closed doors and “force China to play by the same rules as U.S. businesses.”

Pitting One Industry Against the Other

While the manufacturing industry calls for strong action, America’s agricultural industry calls for restraint in response to China’s currency policies.

Lawmakers from states that rely heavily on agriculture exports, including Kansas and Nebraska, worry that China would retaliate, just as they did after the United States banned Chinese poultry product imports. China retaliated, and U.S. poultry farmers lost out on exports worth around $370 million.

Mexico recently slammed the United States with tariffs on agricultural and industrial products because of the United States/Mexico trucking clash.

Agriculture exports to China have reached $15.9 billion, up from $6.8 billion in 2003, and this is one of the few areas where the country records a trade surplus with China.

“All too often protectionist measures trigger retaliatory actions, which hurt our economy while giving way to international competitors. … Misguided policies cost American agriculture producers millions while threatening all exported agriculture products,” testified Rep. Adrian Smith, R-Neb., during the hearings.

Politicians from states with a large manufacturing base call for strong action against China and all countries that manipulate their currency.

“When China joined the World Trade Organization, it agreed to these rules. Our relationship with China is not working today because we are not holding them accountable,” DiMicco said in his testimony.