Howard Richman's  Instablog

When Lawrence Summers read the latest unemployment and GDP reports, he probably arrived at the same conclusion that my father, son and I did (Obama Did Create 3 million Jobs -- In China) -- that the rising trade deficit was killing the U.S. economic recovery. So on Saturday, he left for China to persuade the Chinese government to loosen its currency manipulations and other trade manipulations which maximize Chinese exports to the United States while minimizing Chinese imports from the United States.

In anticipation of his meeting, the Chinese government is erecting a brick wall. They are claiming that they don't keep their people from buying U.S. products. They are claiming that if only we sold them the high tech gear that their military needs, trade would move toward balance. They are claiming that their manipulation of the yuan-dollar exchange rate is an internal Chinese issue. They don't plan to give in one iota. Here is a selection from the Associated Press report:

China rejected pressure over currency Tuesday amid a visit by two high-level U.S. envoys, saying Beijing will set the pace of exchange rate reforms....

The issue is expected to be on the agenda for talks between Chinese officials and the visiting director of the U.S. National Economic Council, Lawrence Summers, and Deputy National Security Adviser Thomas Donilon.

If Obama were just sending someone to talk the Chinese leaders into a voluntary change, he would have sent Chinaphile Treasury Secretary Timothy Geithner. Summers is obviously armed with a threat of some kind. Things are starting to get very interesting.

In February (Bipartisan group of fifteen senators call upon Commerce Department to investigate China's currency manipulations), fifteen senators wrote a letter to the Secretary of Commerce, asking him to investigate China's currency manipulations. This week they got their answer, "No."

Here's a selection from the Senators' February letter:

Our review of the 11 Commerce Department determinations not to investigate petitioners' allegations concerning China's currency manipulation suggests that the Department has prejudged the outcome of a subsidy investigation it has yet to do, rather than assessed the sufficiency of the allegation on the basis of "information reasonably available" to petitioners to determine whether to launch an investigation. This is troubling and suggests that the Department is treating allegations involving China's actions on currency differently than it has treated other allegations, including other currency-related allegations involving other countries.

Here's the reply they got, as reported by the China People's Daily:

U.S. Commerce Department announced on Tuesday its decision not to initiate investigation on allegations that China's currency practices constitute an unfair subsidy.

The currency allegations under review were made in the context of countervailing duties (CVD) investigations of two Chinese products -- aluminum extrusions and coated paper.

"Two allegations before it that China's currency practices constitute an unfair subsidy under U.S. countervailing duty law failed to meet the requirements for the initiation of an investigation," the Commerce Department said in a statement....

In the meantime, the Commerce Department threw the Senators two crumbs. People's Daily reports:

However, in a preliminary determination, the Commerce Department ruled that 514 million dollars of aluminum products imported from China in 2009 were unfairly subsidized. As a result, importers of Chinese aluminum extrusions will be required to post cash deposits or bonds at rates determined by the department... The Commerce Department is currently scheduled to make its final determination in this case in November.

The move came days after the Commerce Department announced a package of 14 proposals to strengthen trade remedy measures. These steps aim to support President Barrack Obama's National Export Initiative (NEI), which aims to double exports in the next five years and support the creation of several million new jobs.

Here are the three most important measures announced by the Commerce Department in an August 26 press release. They are designed to strengthen the Commerce Department's Anti-Dumping and Counter-Vailing Duty investigations:

The effects of these Commerce Department measures will be negligle. They will result in some isolated duties against specific products, which will help those politically-powerful unions and industries who are able to mount Commerce suits to get some relief, but will do little to help the trade deficit. If these Senators want to do something that would end mercantilism, save the blue-collar middle class, and jump-start the U.S. economy, they could pass the scaled tariff and then override the President's veto.

Note. The Senators who signed the letter were: Charles E. Schumer (D-NY), Lindsey Graham (R-SC), Robert Byrd (D-WV), Carl Levin (D-MI), Barbara Mikulski (D-MD), Russ Feingold (D-WI), Susan Collins (R-ME), Olympia Snowe (R-ME), Sam Brownback (R-KS), Jim Bunning (R-KY), Debbie Stabenow (D-MI), Ben Cardin (D-MD), Sherrod Brown (D-OH), Bob Casey (D-PA) and Arlen Specter (D-PA).

The just-out September 20 issue of The Nation has an interesting article by Robert Dreyfus about division within the American union community on China (China in the Driver's Seat).

On the one side is Andy Stern, former President of the Service Employees International Union (SEIU) who makes frequent trips to China to visit with China's Communist-controlled All-China Federation of Trade Unions (ACFTU). (According to Wikipedia, Stern also makes frequent visits to the Obama White House.) 

Stern justifies his trips to China with the claim that he is helping push the ACFTU in a positive direction. Dreyfus writes:

"I get in trouble on Glenn Beck saying, 'Workers of the world unite!' It's not just a slogan," Stern says. It's critical, he adds, for US and Chinese workers to see each other as allies, and he argues that efforts such as his can help shift the ACFTU in a direction that will make it much more representative of its hundreds of millions of members....

On the other side are the United Steel Workers, the AFL-CIO, and the Economic Policy Institute. Dreyfus writes:

For many in the US labor movement, there's little doubt that China is a grave menace, at the very least, to American jobs and prosperity. At the AFL-CIO, the Economic Policy Institute (EPI) and the Alliance for American Manufacturing (a project supported by the United Steelworkers), the book on China is this: it's a bullying, mercantilist power, competing unfairly with other countries by artificially keeping the value of its currency low and by suppressing labor rights and trampling on environmental standards, cannibalizing a generation or two of poor migrant workers to churn out cheap products for export. In this narrative, China exploits the willingness of multinationals to set up unregulated factories along its industrial southern coast, meanwhile blackmailing those firms to share trade secrets and technology with China as the price of admittance. It's a sweeping indictment, and the remedy they suggest involves some combination of daunting and punitive tariffs—as much as 25 percent across the board on imports from China, some say—along with sanctions and other measures to force China to revalue the renminbi, its currency, by 40 percent or more.

Not all American unions are happy with President Obama's policy. He lets China and the other mercantilist countries manipulate the value of the dollar and use other trade manipulations to increase their products' competitiveness while keeping out American exports.

As a result, U.S. manufacturing workers lose good-paying jobs and are forced into unemployment, into community colleges, and into low-paying jobs. The Scaled Tariff that my father, son and I have proposed would end mercantilism, jumpstart our economy, and preserve our blue-collar middle class.