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Viewpoints: The Challenge of China Trade

Manufacturers enter 2007 with a full head of steam, coming out of our most productive year ever with production and new orders for durable goods at all-time highs.While we face many competitive challenges in building upon our country's standing as the world's leading manufacturer, none is more significant in the long term than China's rapid economic expansion. At the same time, this expansion can provide many tremendous benefits to the United States as it is in both countries interest to build a stable, sustainable relationship.

Last year, China racked up a bilateral trade surplus of more than $200 billion with the United States, and that deficit is on track to be even larger this year. The progress of this deficit is unsustainable and, unless addressed, may give rise to dangerous calls for protectionism. Contributing to the debate are China's subsidies of domestic production, barriers to US exports and investments, rampant piracy of copyrights and patents--and a significantly undervalued currency.

China intervenes daily in world currency markets to keep the yuan artificially low, conferring a tremendous cost advantage upon their exports.

The National Association of Manufacturers has been the leader in pushing for China's currency revaluation, first placing the issue at the top of our trade agenda in 2004. At that time, we were a lonely voice raising the alarm, but now virtually every major government and global financial organization is aligned with the NAM in our demand that China must change its currency policy.

In an address to the NAM Board of Directors last September, Secretary of the Treasury Hank Paulson told manufacturers that he has a mandate from President Bush to deal with the Chinese currency problem, and that he is committed to doing so. He indicated that Congressional action in the form of proposed legislation would not help him achieve that goal.

Instead, Secretary Paulson established a high-level US–China Strategic Economic Dialogue to deal with economic and trade issues of mutual interest to our countries. He welcomed additional NAM-member ideas on how best to address this difficult problem, and asked for our support of his new initiative.

The NAM Board of Directors accordingly authorized me to immediately establish a NAM US–China Business Relations Task Force to work with the Secretary. Comprised of executives from a dozen large and small manufacturers, this group will collaborate with Secretary Paulson on currency and other issues that would be addressed in the dialogue.

The task force will provide manufacturers' views on:

  • The need for significant appreciation of the undervalued Chinese currency,
  • Protection of intellectual property,
  • Subsidization of Chinese production through the banking system and other mechanisms,
  • Policies that favor Chinese domestic companies over foreign firms, including tax and investment policies, and standards and regulatory barriers,
  • The need for China to encourage domestic growth and increase its imports of US products,
  • Areas of engagement that can be beneficial to both China and the US, such as energy security and environmental cooperation.

There were those in the NAM who advocated a legislative solution to the China currency problem--a House bill introduced by Rep. Hunter (RCA) and Rep. Ryan (D-OH) (HR 1498), and another in the Senate backed by Senator Jim Bunning (R-KY). The NAM Board decided against this approach, believing that for a number of reasons including the belief even if enacted, legislation would provide neither meaningful relief nor leverage with the Chinese government, while risking significant negative effects on the US–China trade relationship.

The Board's decision not to support HR 1498 was a matter of tactics, not goals. HR 1498 would be likely to move us away from our goal of a more rapid Chinese revaluation, rather than toward it. There is a considerable risk the bill would play into the hands of the Chinese officials who are resisting further movement.

By forming this task force to work with Secretary Paulson, the NAM is reaffirming its commitment to seeing a meaningful appreciation of the Chinese currency. Secretary Paulson is uniquely qualified by his extensive knowledge of and experience in China to work with the Chinese to achieve progress. Even Senators Schumer (D-NY) and Graham (RSC), who had supported tariffs on Chinese imports, agreed to support Secretary Paulson's efforts and withdrew their legislation.

The NAM's objective is the health, competitiveness and growth of manufacturing in America, and we doggedly pursue that goal. We are united in our work to maintain the competitiveness of small manufacturers at home and abroad. Working with the Administration and Congress, we will succeed.


This article was first published in the January 2007 edition of Manufacturing Engineering magazine. 

Published Date : 1/1/2007

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