A little noticed bill was voted out of committee Friday from the House Ways and Means Committee, H.R. 2378, the Currency Reform for Fair Trade Act. This bill finally addresses China's currency manipulation by enabling tariffs. It passed out of committee by voice vote and all it will take to pass is to hear from constituents demanding Congress do so. The Senate version of the bill is S. 3134. You have to be brain dead to not see China is artificially keeping their currency exchange rate low for a trade advantage and have no intention of allowing the Yuan to float. If you don't believe that, believe this graph below. It's the China imports into the United States.
China's currency is considered undervalued by 23%-40%. Economist Robert Scott estimates the United States will lose half a million jobs to China in 2010 alone. Fred Bergsten of the Peterson Institute estimates China's currency manipulation costs the United States 1.4 percentage points in GDP annually. Anyone reading this site knows in every trade report, China is by far the largest contributor to the U.S. trade deficit. Below is a summary of the bill passed out of the committee:
H.R. 2378, AS AMENDED, IS WTO-CONSISTENT
As amended, H.R. 2378 is WTO-consistent because countervailing duties may only be imposed when Commerce finds, based on an assessment of all the facts, that the WTO criteria for an export subsidy have been satisfied, i.e., only if: (1) the foreign government’s interventions in the currency markets result in a “financial contribution”; (2) a “benefit” is thereby conferred; and (3) the resulting subsidy is “contingent on export”.
The key element of the amended bill – indicating to Commerce that it may no longer dismiss a claim based on the single fact that a subsidy is available in circumstances in addition to export – is consistent with WTO precedent. One relevant case is the U.S.-FSC case, which expressly stated that a subsidy may still be export contingent, even if it is available in some circumstances that do not involve export.
Importantly, the amended bill does not legislatively “deem” that a finding of fundamental currency undervaluation satisfies the requirement of export contingency, as the original bill did. With the elimination of this requirement, as well as other changes, the amended bill avoids the WTO vulnerabilities that may have been attributed to earlier versions of the legislation.
Aid to China from individual donor countries averaged $2.6 billion a year in 2007-2008, according to the latest figures available from the Organization for Economic Cooperation and Development.
Ethiopia, where average incomes are 10 times smaller, got $1.6 billion, although measured against a population of 1.3 billion, China's share of foreign aid is still smaller than most. Iraq got $9.462 billion and Afghanistan $3.475 billion.
The aid to China is a marker of how much has changed since 1979, when the communist country was breaking out in earnest from 30 years of isolation from the West. In that year, foreign aid was a paltry $4.31 million, according to the OECD.
Today's aid adds up to $1.2 billion a year from Japan, followed by Germany at about half that amount, then France and Britain.
The U.S. gave $65 million in 2008, mainly for targeted programs promoting safe nuclear energy, health, human rights and disaster relief. The reason Washington gives so little is because it still maintains the sanctions imposed following the 1989 military crackdown on pro-democracy demonstrators at Tiananmen Square, said Drew Thompson, a China expert at the Nixon Center in Washington, D.C.
China is also one of the biggest borrowers from the World Bank, taking out about $1.5 billion a year.
Ever wonder about that? While America has over 14% of it's population in abject poverty, we and other nations are giving China poverty aid?
Roughly three-quarters of the world's 1.3 billion poor people now live in middle-income countries, according to Andy Sumner, a fellow at the Institute of Development Studies at the University of Sussex in the U.K.
That's a major shift since 1990, when 93 percent of the poor lived in low-income countries, Sumner said. It raises the question of who should help the poor in such places: their own governments or foreign donors?
Experts say it's hard to justify giving aid to China when it spent an estimated $100 billion last year equipping and training the world's largest army and also holds $2.5 trillion in foreign reserves.
The insanity abounds. Today the New York Times ran a story, Job Loss Looms as Part of Stimulus Act Expires. Now there was a minor, $1 billion direct hire jobs program, which assuredly the U.S. needed much more of as Stimulus. That said, buried in the story is the reason people lost their jobs in the first place, thus needing the government to step in and create one for them. The reason? Their manufacturing plant shut down and moved to Mexico.
In rural Perry County, Tenn., the program helped pay for roughly 400 new jobs in the public and private sectors. But in a county of 7,600 people, those jobs had a big impact: they reduced Perry County’s unemployment rate to less than 14 percent this August, from the Depression-like levels of more than 25 percent that it hit last year after its biggest employer, an auto parts factory, moved to Mexico.
The pure insanity of this is to go into debt to create jobs, all the while enabling more offshore outsourcing, more U.S. worker displacement and more corporations moving their manufacturing offshore. Trading people, trading jobs is not free trade. Trading finished goods is free trade, what U.S. trade policy is, particularly the China PNTR, is pure global labor arbitrage.
That's why this bill is so important. First, there is bi-partisan support to confront China on their currency manipulation. Second, American plain needs those jobs back. EPI estimates 2.4 million jobs were lost to China from 2001-2008 and now we have another half a million lost to China in 2010 alone.
One of the most odious current economic fiction is claiming unemployment is structural, a nice way of hiding the insult Americans are just too fat, lazy and stupid to do the jobs of tomorrow. This is a complete discriminatory, disgusting falsehood to the American people and also factually false. We have millions, literally millions of highly skilled and educated people needing a job right now. It is global labor arbitrage at play, not the quality of the American worker. The reality is when need to confront a host of policies which enable global labor arbitrage and are destroying the U.S. middle class. The structural issue is trade and other policies, not the U.S. worker and their skill sets.
Econbrowser did a back of the napkin estimate on just trade with China and the U.S. if China's currency was allow to appreciated 10%. Bear in mind, theoretical is not the real world, so this is a simplistic model.
A 10% appreciation of the bilateral yuan, holding constant other currencies, leads to a 10% reduction in US imports of Chinese goods in the long run, and a 16% increase in US exports of goods to China.
Some economists continue to be in denial, claiming China's wage inflation will take care of the trade deficit and level the labor costs playing field. Uh, yeah, in 50 years or so and by then, we'll all be dead and the United States will be in 3rd world status.
Corporate lobbyists, including many U.S. multinational corporations will lobby against this bill. Why? Because they don't give a rats ass about America. They want their cheap Chinese labor and their continual firing of American's like Schindler's List.