Wonder why Republicans lost in Michigan last year?  Look no further than this op-ed from a former Bush speechwriter on their warped ideas of a post-industrial economy in Michigan.  Meanwhile, in the same paper, a look at what happens once manufacturing leaves. 

Is there hope on the horizon for steel?  An encouraging report from Granite City, Illinois as the Congressional Steel Caucus prepares to hold a hearing on Capitol Hill on the state of the manufacturing economy. 

The “BRIC” countries meet to plot strategy.  Maybe they’ll agree to play by the rules on trade and reduce greenhouse gases.

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In a sharp editorial yesterday in the Washington Post, author David Smick notes that China shouldn’t be so smug when chuckling about the U.S. dollar’s growing instability:

While America’s public finances are troubling, to say the least, Beijing and the rest of the world should examine the future for economies, including China’s, that have become overwhelmingly dependent on exports. Their future looks as problematic as the future of the debt-ridden United States.

Essentially, China has pegged both its hopes and its currency to that of the U.S. market.  Beijing’s currency manipulation has helped grow its trade surplus with the U.S. in recent years.  Unfortunately for China, as Smick points out, “exports of the world’s three biggest exporters — Germany, Japan and China — are 33 percent lower than they were a year ago.”

Some of this decline in trade is due to a worldwide recession.  But Smick also notes that there is a “quiet shift toward a new era of deglobalization.”

The problem for China is that it’s entire economy is based on exporting.  Smick points out that, while U.S. exports are 11% of GDP, according to the World Bank, China’s are 42% of GDP.

Simply put, the same market-distorting practices that have helped China become an export juggernaut in boom times could very well come back to haunt them as the current downturn rolls along.

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The Financial Times reports that China “is still buying record amounts of US government bonds” and doing so despite “increasingly vocal fear of a dollar collapse.”

There is some irony in this because China has long since wedded its fate to that of the U.S. economy by pegging its currency, the Yuan, to the dollar for more than 15 years.

What might help most in the long run is for Beijing to halt such massive, market-distorting practices.

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Here’s something to consider in the economic debate on addressing the current U.S. recession.  In today’s Washington Post, Bob Samuelson notes that currency misalignment was a contributing factor to the Great Depression.  He cites the recent ‘Lords of Finance,’ by Liaquat Ahmad and points to France’s deliberate policy after World War I of manipulating its currency:

Unfortunately, the war damaged the system beyond repair. Britain, the key country, was left with only 7.5 percent of the world’s gold reserves in 1925. Together, the United States and France held more than half the world’s gold. The war had expanded U.S. reserves, and when France returned to gold, it did so with an undervalued exchange rate that boosted exports and gold reserves. Meanwhile, German reparations to Britain and France were massive, while those countries owed huge amounts to the United States. The global financial system was so debt-laden that it ‘cracked at the first pressure.’

There’s a relevant parallel, namely that China’s deliberate undervaluation of its currency since 1994 has resulted in an essentially continuous rise in its annual trade surplus with the U.S., from roughly $30 million then, to $266 billion in 2008.

This trade surplus has enabled China to become a manufacturing powerhouse, subsidizing its industries and dumping product in the U.S. market.  All of these actions have only served to further distort world trade, resulting in the current global crisis.

The bottom line: it’s imperative for the U.S. to get its trade policy right.  And step one should be strong enforcement of the laws designed to help balance trade and smooth out such obvious, predatory practices on the part of countries like China.

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Robert Samuelson reminds us that currency misalignment was a contributing factor to the Great Depression in a piece titled “Our Depression Obsession.”  It might actually be our “Great” Obsession, as the former Fed Chairman and the President’s advisor Paul Volcker has taken to calling the economic mess we are in the ”Great Recession.”

China is being called on its polluting ways by the International Energy Agency.  But economic concerns, especially now, when the Chinese government is trying to rev up the economy, are taking precedence over the concerns about the environment.  You might say: “What else is new?”  And we say: “California.”  Its unemployment, to be exact.  It was reported last Friday that the state’s unemployment accelerated to the level past 11 percent, the highest on record.  Unfortunately, it’ll probably get worse, and more and more workers will have to rely on government aid.  Here’s how the aid distribution system works for laid-off or displaced by trade workers in Maine. 

Last night on CNN’s Lou Dobbs program, AAM Director Scott Paul discussed China’s ongoing currency manipulation:

LISA SYLVESTER, CNN CORRESPONDENT (voice-over): Made in China, clothes, toys, electronic gadgets. The United States has racked up a $266 billion annual trade deficit with China and it continues to grow. Many economic analysts say China’s currency has played a major role.

SCOTT PAUL, ALLIANCE FOR AMER. MANUF.: China is artificially undervaluing its currency to gain a trade advantage so its goods come into the United States about 30 percent cheaper than they should be.

SYLVESTER: The Alliance for American Manufacturing says that encourages companies to stop manufacturing in the United States and ship production to China, costing American jobs. When President Obama was then candidate Obama, he agreed.

OBAMA: We can’t have China manipulating our — its currency to make our exports more expensive and theirs cheaper.

SYLVESTER: That was almost a year ago while he was campaigning in Pennsylvania. Fast forward and now in a new report the Treasury Department says it did not find that any major trading partner had manipulated its exchange rate to gain unfair competitive advantage.

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Sen. Debbie Stabenow (D-MI) is reintroducing legislation to address China’s currency manipulation.  Stabenow’s legislation would provide an explicit definition of when currency misalignment occurs and direct the U.S. Department of Commerce to treat currency undervaluation as a prohibited export-contingent subsidy.

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Yesterday, AAM Director Scott Paul released a statement in response to the latest Treasury Department Report on International Economic and Exchange Rate Policies.  He found it “perplexing” that the Obama administration had backed off from its tough campaign talk about China’s illegal currency manipulation, a quote that USA Today highlighted in an article today regarding the Treasury report.

In addition to USA Today, Scott’s commentary was widely picked up by the national media.  In an interview with the Wall Street Journal, he said of the Administration’s decision not to tackle China’s currency pegging, ”It’s disappointing.  I don’t know what changed between Secretary Geithner’s statement in January and today.”

Scott’s statement was also cited by the Los Angeles Times, which noted his view that China’s currency manipulation is “the most protectionist, trade-distorting and mercantilist practice by any of the G-20 nations.”

And, The Hill also picked up on the unusual “change of heart” by the administration that represented a “missed opportunity.”

The bottom line, as Scott pointed out in his statement, is that ultimately, the proof will be in the results: ”If China makes a significant and appropriate appreciation of the Yuan, the Obama Administration’s current strategy will be a success.”

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The Obama Administration does not name China as a currency manipulator.  Coverage here and here.  AAM’s statement here.

The Granite City pipe controversy makes a national splash with a Lou Uchitelle treatment in the New York Times.

The Obama Administration will unveil its high speed rail plan today. 

This afternoon, at precisely 4 pm ET, the U.S. Treasury Department issued its latest Semi-Annual Report to Congress on International Economic and Exchange Rate Policies.  China-watchers have studied these reports carefully in recent years to gauge first the Bush Administration’s, and now the Obama Administration’s, approach to China.

ManufactureThis has frequently discussed China’s ongoing currency manipulation–its artificial devaluation of currency to gain a trade advantage.  In the latest report, the Treasury Department did not cite China or any other country for currency manipulation, stating: “In the current Report, Treasury did not find that any major trading partner had manipulated its exchange rate for the purposes of preventing effective balance of payments adjustment or to gain unfair competitive advantage.  Many economies still maintain fixed exchange rate regimes, either to a single currency or a basket of currencies.  Nevertheless, there has been considerable movement toward greater exchange rate flexibility.”

The U.S. continues to run a large trade deficit with China, though– $266 billion in 2008– and concerns remain regarding China’s mercantilist trade practices.  AAM Director Scott Paul found the latest Treasury report to be “perplexing”:

“The Treasury Department’s report today was perplexing.  During his confirmation hearings in January, Secretary-designate Geithner indicated that he believed China was, in fact, manipulating its currency.  China has made no significant movements towards a flexible and market-based exchange rate since that time, so I am not sure why the Treasury Department had a change of heart today. 

“Ultimately, the proof will be in the results.  If China makes a significant and appropriate appreciation of the Yuan, the Obama Administration’s current strategy will be a success.  The failure of this report to cite China represents a serious missed opportunity.

“China’s currency misalignment results in serious global imbalances.  It is the most protectionist, trade distorting, and mercantilist practice by any of the G-20 nations.  The U.S. should lead the way in ensuring that China honor the commitments it made to gain access to the U.S. market and the rules-based trading system. 

“We commend President Obama for the commitments he made last year on trade policy and currency in particular.  We are confident that the Administration will make the appropriate reforms, but this report represents a step back from that path.”
 
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