Heard Off the Street: Advocates call out China on currency

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China's manipulation of its currency, which contributes to chronic U.S. trade deficits, is "one of the most underappreciated economic issues in Washington today," according to Scott Paul, president of the Alliance for American Manufacturing.

Mr. Paul, the Economic Policy Institute and two like-minded lawmakers made another stab at raising awareness of the problem last week with a report documenting the impact China's policy has on the U.S. economy. EPI's Robert Scott, the author of the report, calculates that ending the policy would, by 2015, reduce the trade deficit by up to $500 billion, add as much as $720 billion annually to the U.S. economy, and create as many as 5.8 million jobs. The job count could include more than 2.3 million manufacturing jobs.

While Japan, Malaysia and other countries manipulate their currencies to promote exports, China is by far the largest offender, Mr. Scott said Wednesday during a conference call discussing the report.

U.S. Sen. Sherrod Brown, D-Ohio, and U.S. Rep. Sandy Levin, D-Mich., joined the call.

"It's clear that China continues to manipulate the currency. It's still a considerable ways from where it would be if there was a true market," Mr. Levin said

The two lawmakers are sponsoring legislation targeting the practice, proposals that have attracted broad bipartisan interest.

Here's how currency manipulation works. A country artificially deflates the value of its currency. China does that by buying up massive amounts of foreign currencies, which drives up the value of those currencies and deflates the value of its currency, the yuan. The cheaper a currency is valued, the cheaper its products are in foreign markets. A country with a strong currency is at a disadvantage when it comes to exporting into countries with weaker currencies.

Mr. Paul said if President Barack Obama really wants to create 1 million new manufacturing jobs and double exports, he should thwart currency manipulators. He and others on the call have been disappointed by the White House's response so far.

Nevertheless, they are pushing for provisions to address the issue to be included in the Trans-Pacific Partnership, a broad trade agreement being negotiated among the United States, Australia, Japan and nine other countries.

So far, currency manipulation is not on the agenda.

* * *

Perhaps you're too young to remember Smith Barney and the Wall Street firm's classic advertising slogan, delivered in earnest by Oscar winner John Houseman: "Smith Barney makes money the old fashioned way. They earn it!"

So much for the good old days.

Today, the average time investors hold a stock is measured not in months or years, but in days and sometimes even seconds. The new-fashioned way some investors grind out a living is a far cry from the deliberative, analytical process Mr. Houseman would have had you believe was Smith Barney's stock in trade. Instead of rolling up their sleeves, they rely on high-speed computers and advance access to critical information.

New York Attorney General Eric T. Schneiderman is trying to complicate their pursuit.

Last week, he announced 18 Wall Street firms have agreed to stop participating in analyst surveys by investors seeking to determine how analysts view companies before their opinions are released to the broader market. Stocks regularly rise and fall after analysts issue buy or sell opinions, so knowing how they are leaning in advance of when those opinions are released can help investors reap profits or avoid losses.

Last month, BlackRock, the world's largest asset manager, agreed to stop conducting such a survey as the result of the attorney general's investigation.

Mr. Schneiderman has also inspired Business Wire, which distributes corporate earnings and other market-moving information to the media and the financial community, to stop distributing that information to high-speed traders a fraction of a second earlier. Equipped with powerful computers, high-speed traders can turn that advantage into the kind of profits that would make Mr. Houseman roll over in his grave.

Last year, Mr. Schneiderman won agreement from Thomson Reuters to end its practice of selling early access to consumer confidence data to high-frequency traders.

Buying access to advance information is not the only way high-speed, or high-frequency, traders work. They also capitalize on small, temporary price discrepancies, such as different markets putting different prices on the same security. A few pennies' difference turns into real money quickly if you trade millions of shares, which high-speed traders are capable of doing.

The deluge of trading can move markets. Many blame the new breed of investors for the May 2011 "flash crash," when the Dow Jones industrials fell 1,000 points in minutes.

Limiting high-speed traders provides some solace to the so-called "dumb money," investors who still try to make money the old fashioned way.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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