Labor & Employment Law

Bold Action On China Currency Would Help U.S. Economy

By James Parks

In two days of hearings that begin tomorrow, the House Ways and Means Committee will take a close look at the impact of  the Chinese government’s policy of manipulating its currency on our economy.

He?s not on the Ways and Means witness list, but the committee should check out what economist Paul Krugman has to say about the subject. Writing in the New York Times yesterday, Krugman says the Chinese government has intimidated U.S. policymakers and businesses into not acting in our best interests because they are afraid that the Chinese governmnet?our biggest bond holder?will call in our debt if we get in their face about their currency policies.

But Krugman says, in effect, ?bring it on.? He says that in a world awash with excess savings, ?we don?t need China?s money? especially because the Federal Reserve could and should buy up any bonds the Chinese sell.

 It?s true that the dollar would fall if [the Chinese government] decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive.

The reason this is a critical issue is that the Chinese government’s currency manipulation creates a huge trade deficit that costs U.S. jobs. The Economic Policy Institute (EPI) estimates that the currency manipulation and the trade deficit it creates cost 2.4 million U.S. jobs between 2001 and 2008. Congress is expected to vote as early as this week on two bills, H.R. 2378 in the House and S. 3134 in the Senate, that would give the government broader powers to act against the Chinese government’s currency manipulation.

In a letter to House members, AFL-CIO President Richard Trumka said:

Immediate action on currency manipulation is the single most important step the U.S. government can take to create jobs at no cost to taxpayers.  I write to ask your support for HR 2378, the Currency Reform for Fair Trade Act of 2010.  This legislation is urgently needed to address a serious and ongoing problem for American workers and manufacturing.

Instead of wringing its hands, the government should act boldly to counter the Chinese government’s actions, Krugman says:

 Clearly, nothing will happen until or unless the United States shows that it?s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy.

 Krugman says U.S. businesses have backed off challenging the Chinese government’s policies for fear China will close their markets to them He praises the United Steelworkers (USW) as being the only organization willing to file a formal complaint against the ?clearly illegal subsidies China provides to its clean-energy industry.?

So here?s the question: Will U.S. policy makers let themselves be spooked by financial phantoms and bullied by business intimidation? Will they continue to do nothing in the face of policies that benefit Chinese special interests at the expense of both Chinese and American workers? Or will they finally, finally act?

Full post as published by AFL-CIO NOW BLOG on September 14, 2010 (boomark / email).