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Currency Manipulation/Unfair Trade Practices

Background: Some countries, most notably China, have boosted competitive advantage of their manufactured products by keeping their currencies artificially low. The U.S. trade deficit with China has grown from $103 billion in 2002 to a record $266.3 billion in 2008. China has steadfastly refused to float its currency freely on the market, handicapping U.S. producers versus their Chinese competitors and preventing a much-needed solution to this unfair trade practice.

In the 110th Congress (2007/2008), AFS strongly supported legislation called The Currency Reform for Fair Trade Act (H.R. 2942), introduced by Congressmen Tim Ryan (D-OH) and Duncan Hunter (R-CA). AFS supported a similar measure in the Senate entitled, The Fair Currency Act of 2007 (S. 796), introduced by Senators Debbie Stabenow (D-MI), Jim Bunning (R-KY) and Evan Bayh (D-IN). Senator Obama, now President Obama, was a cosponsor of this legislation. Both bills recognize exchange-rate misalignment - whether by China or by any other country - as an export subsidy. It would open the door for the Commerce Department to impose countervailing duties on a broad array of Chinese goods. Under these bills, U.S. companies will finally be able to take corrective action under U.S. trade laws.

In January, the U.S. trade deficit with all of our major trading partners dropped — with one exception. The trade imbalance with China rose 3.5 percent. More recently, the Obama administration "backpedaled" on currency after Treasury Secretary Timothy Geithner called China a currency manipulator in his written answers during his confirmation process.

Outlook: Since last November, a host of nations has imposed a total of 47 measures that restrict trade at the expense of other countries. The most obvious trade restrictions -- raising tariffs or taxes on imports -- represent only about a third of all measures taken. Some countries are taking a direct approach. Ecuador, for instance, has raised tariffs on more than 600 items. But most are taking more creative steps that fall into the gray area of what is considered legal under international trade law.
Argentina, for example, has put new licensing requirements on auto parts, textiles, televisions, toys, and leather goods that create a new layer of bureaucracy for overseas exporters. China and India have increased the tax rebates for domestic exporters, seen by critics as providing a stealth subsidy that makes their products unfairly cheaper abroad.

Furthermore, the current economic conditions have made senior Democratic members of the House and Senate reluctant to move forward on currency manipulation legislation. In addition, they have not received a strong signal of support from the Obama administration. Congressman Ryan is once again drafting currency legislation and is expected to introduce a bill in April 2009. Sens. Bunning and Debbie Stabenow are working on reintroducing a Senate counterpart to last year’s House bill (H.R. 2942).

We do anticipate a trade agenda focused on enforcing U.S. trade laws — not necessarily striking new trade deals. During the presidential campaign, Obama courted Rust Belt votes with a promise to sharpen labor and environmental protections in the North American Free Trade Agreement and other trade agreements.

AFS Action: Over the years, AFS has lobbied members of Congress to:

• press China and other nations to abide by their trade obligations and cease manipulating their currencies, among other illegal subsidies and practices
• go after foreign theft of American designs and ideas
• require “full reciprocity” in trade agreements.Countries that don’t follow U.S.-style labor, safety and environmental rules cannot ship their goods here.
  

For 2009, with the focus in Congress on enacting climate change, several major workplace rules, and health care reform, the AFS Government Affairs Committee did not choose unfair trade practices/currency manipulation as an industry priority issue.

For more information, contact Stephanie Salmon, Metalcasting Industry Government Affairs Washington Office, at 202/842-4864 or ss@wafed.com.

Copyright © 2009, AFS/NADCA