Ignore China's Partners

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September 27, 2010

Ignore China's partners

William R. Hawkins



In an early draft of his Farewell Address, President George Washington wrote, "we would guard against the Intregues [sic] of any and every foreign Nation who shall intermeddle (however indirectly and covertly) in the internal concerns of our country-- or who shall attempt to prescribe rules for our policy with any other powers." We should consider his advice when evaluating the debate over the Currency Reform for Fair Trade Act (H.R. 2378) which is set for a vote in the House of Representatives this week.





The legislation is rather modest in its approach to a major issue. China's exchange rate is not set by the market but by government fiat to gain a competitive advantage in trade. The bill would define such currency manipulation as an illegal export subsidy under U.S. law and consistent with World Trade Organization rules. American firms could file a suit with the Commerce Department if they felt they were being harmed by this practice. If they could prove their case, countervailing duties could be applied to Chinese goods entering the U.S. market.







The lead opponent of the legislation is the U.S.-China Business Council, which calls itself "a private, nonpartisan, nonprofit organization of roughly 220 American companies that do business with China....USCBC's mission is to expand the US-China commercial relationship to the benefit of its membership and, more broadly, the US economy." The US economy, however, is not benefitting on net from trade with China, having run an aggregate deficit with Beijing of over $1.6 trillion during the last decade. By relocating plants or outsourcing orders to China, USCBC members have contributed to this deficit in major ways and they want to continue to do so for their own benefit.







China has, in turn, used the gains from trade and investment to expand its industrial and technological base. Beijing has used these new capabilities to support its military buildup and a foreign policy that menaces American security interests around the world.







James Sasser, who served as ambassador to China during the Clinton administration, observed how Beijing intermeddles in U.S. policymaking, "The Chinese really don't do any lobbying. The heavy lifting is done by the American business community." Or at least by those firms who think they can profit from helping China rise regardless of the broader consequences. The USCBC fits Sasser's description and Washington's warning.







Its press release after the House Ways and Means Committee voted H.R. 2378 to the floor on Sept. 24 stated, "USCBC believes that China's exchange rate should better reflect market influences from trade flows and supports effective actions to get to that goal.... Counterproductive tariff legislation is just the wrong way to get to that goal and will do more harm than good. The Obama administration's multilateral and bilateral approach should be supported and continued, not undermined." This is simply an echo of Beijing's party line.



China knows that as long as talk is used as a substitute for action, it does not have to change its policy. The Ways and Means Committee's vote occurred about two weeks after White House economic advisor Lawrence Summers returned empty-handed from the latest attempt to negotiate trade issues in Beijing. Chairman Rep. Sander Levin (D-MI) noted that his committee was acting "after years of deliberation and discussion in multilateral venues" had failed.







If H.R. 2378 becomes law, it will give American diplomats a stronger hand to play in future talks. And if China still refuses to relax its control of the exchange rate, then the U.S. government can exercise its sovereign right to offset the negative effect on American firms by determining on what terms foreign goods are allowed to cross the nation's border.







Posted at 08:57 AM