China's play with money seen as threat
Some members of Congress want stiff penalties levied against China for manipulating the value of its currency to boost its exports and make U.S. imports harder to sell. Bob Moon reports.
A bank worker prepares to count stacks of 100 Chinese yuan notes at a bank in Hefei, China. (AFP/Getty Images)
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TEXT OF STORY
Kai Ryssdal: One country trying to control the value of its currency is really nothing new. The United States has, after all, been flooding global money markets with greenbacks for more than a year now. Of course that was to stabilize the financial system. An arguably positive thing.
Today some members of the United States Congress accused China of a more nefarious plot. Not for the first time, they accused Beijing of keeping an artificial lid on the value of its money. Thus boosting Chinese exports and making it harder to sell our goods there. They propose stiff penalties on countries that are engaging in unfair currency manipulation. But why should we care? Sounds like a job for our senior business correspondent Bob Moon.
BOB MOON: We found the owner of a machining operation outside Flint, Mich., who's directly affected.
Laurie Schmald Moncrieff runs Schmald Tool and Die, and says it's not just cheap Chinese labor she has to deal with -- it's getting past the lopsided cost of steel or aluminum.
LAURIE SCHMALD MONCRIEFF: We can't even buy the material for the price that they're selling product for. Before I even put any labor, before I even put any cost into that raw material, I'm already too expensive.
She complains the Chinese government is essentially subsidizing its exports by keeping its currency value low. And until our government deals with that, she says, it needn't waste its time with hiring programs.
Fred Bergsten heads the Petersen Institute for International Economics. He says there's no question the Beijing government knows what it's doing.
FRED BERGSTEN: What they do is buy dollars and sell their own local currency, renminbi. That keeps the dollar exchange rate strong, it keeps their own currency weak, and that distorts trade flows by cheapening Chinese exports, and raising the price of imports from the United States coming into China.
Some critics warn that responding with tariffs could trigger a protectionist tit-for-tat. But Bergsten says the U.S. and its allies have tried to reason with Beijing.
BERGSTEN: If China continues to be recalcitrant, and imposes its own hugely protectionist device of an undervalued currency, then I think it's up to other countries to defend their own interest.
In this game that all countries play, President Obama did seem to be open to some kind of new tactic when he spoke last week to the Import-Export Bank.
PRESIDENT OBAMA: We need to secure our companies a level playing field. We need to guarantee American workers a fair shake. In other words, we need to up our game.
Lawmakers say support for some kind of action is so strong they expect quick passage of their bill to slap duties on certain Chinese exports.
I'm Bob Moon for Marketplace.
Comments
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From Milan, MI, 03/19/2010
Unfortunately, the president's actions on just about every other issue don't match his rhetoric that "We need to secure our companies a level playing field. We need to guarantee American workers a fair shake." Crushing taxes on carbon dioxide emissions, central planning in the health care and financial industries, and allegedly stimulative subsidies to selected Democratic campaign supporters--he could hardly do American workers a worse turn if he were trying to.
From Fremont, CA, 03/18/2010
It is interesting that market place pick up this story to justify its topic on the foreign exchange rate issue. How about millions of migrant workers export job lost thanks to the appreciation of RMB? Perhaps it is not US concern? Then ok, we got the issue resolved, as the current US employment issue is not a China's concern, neither. The point is that escalating the economical issue into political arena will not yield any winner out of it. Slap tariff on Chinese goods will only come back to hurt the US consumers as they are the ones spend money on those �cheap Chinese goods� made by millions Chinese migrant workers earning less than $5 per day.
From Atlanta, GA, 03/17/2010
The undervalued Chinese currency is a red herring. The cost of a laborer (salary and benefits) in China is ~$100 per month. An engineer is ~$1000/month. The US rates are ~$1900 and $6000 respectively. The currency inflation might raise the Chinese rates 50%, but we still can't touch their labor rates.
A piece of advice to Ms. Moncrieff. Get a Chinese source and buy your raw materials over there. Use the Chinese subsidy to your advantage.
03/16/2010
To James A K:
Search for "monetization of debt" how the money is printed.
Treasury does not print money. It borrows money from market by issuing bonds. If the deficit is large, then govt debt will crowd out the market. That is where evil FED steps in. They print money and exchange newly printed money for the bonds. Now a days FED has sunk so low that they exchange newly printed money for toxic assets.
03/16/2010
As Krugman recently pointed out Chinese currency policy is beggaring global economic recovery not just the U.S. So apply tariffs to their goods. That’s political economy.
As for country’s controlling the value of their currency it hardly hurts to have the USD be the world’s de facto currency. We would not want to be in Greece’s position, or Spain’s later on.
What the People’s Bank of China Cannot Do with Their Reserves
By Michael Pettis
http://mpettis.com/2010/02/what-the-pboc-cannot-do-with-its-reserves/
From Richmond, TX, 03/16/2010
I don't think the US just prints money. The US could "just print" money, that however would lead to wild inflation as has been experienced by several South American countries.
Instead, the US sells bonds to finance the debt. In fact, while not backed by gold, it is backed by other peoples money... by the way.. it is a LOT of Chinese money....
Maybe Market Place could do a brief piece on how the US increases its money supply...
I don't believe they "Just print more money"...
From Raleigh, NC, 03/16/2010
If the U.S. Congress REALLY wanted to fix this problem, they would put the U.S. Dollar back on the Gold Standard. The corrupt U.S. Government wants to print money and export inflation (instead of real products) and understandably the Chinese don't think that as fair.
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