We have a trade problem with China. But Georgians will pay dearly if Congress keeps taking the wrong approach to solving it.
That approach is to punish China for currency manipulation. The bill being debated in the U.S. Senate applies to any country that Washington deems to have undervalued its currency and hurt our exports. But China, with which we had a $273 billion trade deficit last year, is the target.
Beijing’s manipulation of its currency, the yuan, has been a favorite bogeyman of members of Congress for years — most notably Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C. Generally speaking, when politicians from both major parties continue to flog an issue for years on end, it makes for much better politics than policy. The currency bill would not solve our problems with China, real or imagined.
First, the imagined problem: that yuan manipulation contributes to our high unemployment rate.
The yuan was most undervalued versus the dollar from the mid-1990s to the mid-2000s — a time of low U.S. unemployment. Beijing began letting the yuan appreciate in value in 2005.
It has risen about 23 percent since then. Yet, the U.S. unemployment rate rose sharply during the same time period. Simply put, there’s no correlation between the yuan-dollar rate and U.S. joblessness.
The other problem you’ll hear about is our trade deficit with China. The real issue is that we export too little to China. Attacking the exchange rate is not the way to boost the goods and services we sell to the Chinese.
Last year, China was tops in imports to Georgia and second only to Canada among destinations for our exports. Georgia exports to China were worth nearly $2.4 billion, up more than one-third from 2009. Wood pulp, aircraft and plastic were among the industries that did the most business with China.
The risk is that the currency bill would spark retaliation from China, which would provoke another measure from our side, and so on — until it grew into a full-blown trade war that made goods pricier for consumers and crimped exports, killing more jobs.
“There is no way a spiral of trade conflict can help the United States,” says Derek Scissors, an expert on U.S.-Asia economic policy at the Heritage Foundation. “It can hurt the Chinese worse, but it cannot help the United States.”
A far better way to boost exports is to negotiate with Beijing to improve our access to the Chinese market.
“What they say” now, Scissors says of Chinese authorities, “is state-owned enterprises must lead or dominate the following 20 industries. … “They’re going to not allow you [as a U.S. firm] to expand, not allow you to sell, not allow you to get licenses.”
Those sectors range from automobiles and banking to ones in which Georgia firms are more prominent, such as poultry and chemicals.
Poultry, he says, is an example of how even legitimate trade complaints can spiral.
“China has been messing with us on poultry exports for quality control because we messed with them on quality control — because their stuff kills people,” Scissors says. “We have a justified quality control issue; the Chinese retaliate. So someone loses even though we have a completely justified issue.”
With better access, Scissors estimates U.S. companies’ market share in China could be double what it is now.
Liberalizing trade rules — one of the key means through which the world economy grew, and people climbed out of poverty, in the last half-century — is far preferable here to picking a trade war. Legislators and presidents from both parties, however, have made it harder to open trade by focusing on the yuan and other peripheral issues.
Unfortunately, both of Georgia’s senators voted to advance the bill (albeit without committing to supporting the final legislation). And six members of our House delegation — all five Democrats, plus Republican Lynn Westmoreland — are co-sponsors of a similar bill in that chamber.
For Georgia’s sake, they need to reconsider.
– By Kyle Wingfield