Chinese Currency Manipulation Puts Stranglehold on Middle Class

[Omaha Steve]

http://blog.thehill.com/2007/11/01/chinese-currency-manipulation-puts-stranglehold-on-middle-class/#more-4614

November 1st, 2007

Layoffs. Bankruptcies. Foreclosures. How many working families must hit rock bottom before lawmakers act on one key component of their fall — currency manipulation? Over the past seven years our Asian trading partners, led by China, have boosted the competitive advantage of their manufactured products by keeping their currencies artificially low. The Chinese yuan sets the pace for other currencies in the region and it remains undervalued by an estimated 40 percent. It’s time for action.

Up until now, our government sat on its hands while the trade deficit with China soared. It more than doubled between 2002 and 2006, growing from $103 billion to $233 billion. Last year China accounted for a shocking 43 percent of our manufactured goods deficit. It is currently on a pace to hit a full half of that deficit by year’s end. Today China, Malaysia, Korea and Japan account for two-thirds of our 2007 trade deficit in manufactured goods.

While governments played money games, American manufacturing was being decimated. Our nation lost more than 3 million manufacturing jobs and over 40,000 facilities closed since Bush took office. The loss of 18,000 additional manufacturing jobs in September put manufacturing employment below 14 million for the first time since 1950. Currency manipulation has played a damaging role in this decline.

Two-thirds of the products coming into the U.S from China are produced by transnational firms, many of them American, who have gone there in part to take advantage of the artificially low currency. Cars and automotive parts manufactured in Japan gain a major advantage from the undervalued yen. Every Japanese automobile import has a $4,000 to $12,000 dollar price advantage built in.

To understand how out-of-whack things have become one only needs to look at what has happened with the dollar. Its decline by more than 25 percent over the last eighteen months created a trade advantage with Europe, but not with China, which keeps the yuan within a narrow range of the dollar. As a result, while our deficit with Europe declined by $18 billion through August 2007, our deficit with China’s continues to soar and is running $20 billion ahead of last year’s record.

This is not an academic exercise. The difference between currency manipulation and a fair exchange rate is the difference between having a job and watching your factory shut its gates. It is the difference between having health insurance for your kids – or not. And, for our country, it may be the difference between having a healthy middle class – or sitting back and watching as economic divisions tear us apart.

FULL story at link.