China cheats, we lose

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We're five years past the onset of the Great Recession. The stock market is booming and unemployment has inched down to its lowest level since the crisis began.

So why, despite gaudy Dow Jones data and assurances that a 7.5 percent jobless rate in Pennsylvania isn't a real concern, does this economic recovery feel like such a drag?

Here's a big reason: America is getting beaten badly in the trade arena. In 2012, the United States bought roughly half a trillion dollars more than we sold to our international competition. Our trade deficit with China alone ran $315 billion last year.

That's a big, loud number, and there are plenty of ways you can put it in context. You could say that $315 billion is more than the combined revenue of General Motors and General Electric during that year, or that it's larger than the gross domestic product of Denmark. Or you could simply observe that it's a heck of a lot of money that's disappearing into Beijing's bank accounts.

But don't believe for a second that our China trade deficit is the result of a free market at work.

Since we granted normalized trade relations to Beijing over a decade ago, we've traded production capacity and about 2.7 million middle-class jobs (including more than 100,000 jobs in Pennsylvania) to China in order to live high on the consumption hog.

Beijing fuels this trade gap through persistent market interventions. The Chinese government subsidizes competitive industries, forces American companies to transfer intellectual property when accessing the Chinese market, ignores widespread counterfeiting and sponsors cyber-espionage against U.S. targets, stealing everything from Coca-Cola trade secrets to Pentagon missile-defense plans.

But ultimately, no single subterfuge does as much sustained damage to the American economy as Beijing's policy of currency manipulation.

China holds massive reserves of American dollars. By hoarding cash, Beijing actively works to inflate the value of the dollar while artificially lowering the value of its own currency, the yuan. Doing so acts as a hidden tax on American goods entering the Chinese market and as a subsidy for Chinese goods entering our home market.

This isn't just an economic theory: By distorting the market with its rigged currency, China has exponentially expanded its wealth -- and American companies and workers pay the price. It's past time our leaders acted to stop it.

A bill making its way around the House of Representatives does just that. The Currency Reform for Fair Trade Act would allow businesses to file trade cases based on injury from China's currency manipulation.

Passing it would produce immediate results. Even the hint of action on currency manipulation causes shudders in the Chinese politburo.

A Senate procedural vote in 2005 that marked the first step toward addressing Beijing's currency manipulation provoked an immediate rise in the yuan. And when then-Treasury Secretary Timothy Geithner threatened action ahead of a G-20 meeting in 2010, the yuan rose.

It rose again during House and Senate votes on currency legislation in 2010 and 2011. And when President Barack Obama and Mitt Romney promised to counter harmful Chinese trade practices during the 2012 campaign, the yuan budged.

But when we ease the pressure, the yuan's pace of appreciation decelerates dramatically. Without that pressure, nothing will change.

The last time such a bill came up, in 2011, all members of Pennsylvania's congressional delegation supported it. That put them in step with the overwhelming majority of Americans that favors standing up to China, according to national polling.

But this issue hasn't been resolved. And Pennsylvania's congressional representatives need to show their support again, especially with so many jobs on the line in a sluggish economy. We can't afford to watch more slip away because our competitors continue to game the system.

We'll be watching. Currency manipulation is an assault on free market principles, and Congress must act.

opinion_commentary

Scott Paul is president of the Alliance for American Manufacturing, which includes both U.S. Steel and United Steelworkers.


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