The U.S. is China's market of first and last resort (thanks to their deliberately undervalued currency)

Posted by scapozzola on 06/11/2012

The New York Times' Keith Bradsher reports that China's domestic economy has been stumbling of late due to a slowdown in construction and a sluggish retail market.

But that's not a major problem because China has an ace-in-the-hole.  Whenever the economy of the People's Republic hits any headwinds, Beijing can always ramp up exports to support job growth.

According to Bradsher, China's exports surged 15.3% in May 2012 compared to May 2011.  That's twice as fast as economists had expected.  Apparently, May actually clocked in as the biggest month ever for Chinese exports, and the country's trade surplus has expanded in each of the last three months.

All of this massive exporting is more than enough to preserve millions of factory jobs throughout China's industrial sector.

What's most instructive, though, is that China is depending on the U.S. market, not the EU, as its biggest customer.  Apparently, exports to the U.S. were up 23% in May from a year earlier, but only increased 3.2% to the European Union.

Helping to fuel this massive sales boom to the U.S. is China's deliberately undervalued currency.  By pegging its currency to the dollar at an artificially low rate, Beijing is making sure that its exports are exceedingly cheap in the U.S.  Conversely, U.S. exports become more expensive due to this preferential currency rate. 

Despite continuing Congressional concern, the problem is actually getting worse.  Bradsher reports that Beijing has actually depreciated its currency more of late.  The Yuan fell nearly 1 percent against the dollar last month, and Bradsher says this is the "largest drop since Beijing officials unpegged the currency from the dollar in July 2005."

The fact that Beijing can adjust its currency so precisely is proof yet again that it deliberately manipulates the Yuan to gain an export advantage.  But despite this blunt evidence, the Obama Administration has now refrained from designating China as a currency manipulator seven times.

Even though President Obama talked tough on China in the 2008 campaign, and promised action on the currency issue, his Administration has basically given China a "blank check" by not naming them a currency manipulator.

By contrast, GOP Republican hopeful Mitt Romney has taken a hard line in his campaign, promising to cite China for its currency peg on day one of his presidency.

National polling makes clear that the American people overwhelmingly support such action on China's brazen violations of world trade law, including its currency undervaluation.  Thus, Romney's campaign rhetoric is well-timed and well-informed.

Amazingly, Speaker of the House John Boehner has continued to block movement on a House currency bill despite overwhelming, bipartisan, majority support for such legislation. The House is considering H.R.639, the Currency Reform for Fair Trade Act, which has 233 cosponsors, including 65 Republicans.  (In 2010, the House passed a similar bill, H.R.2378, the Currency Reform for Fair Trade Act, by a strong, bipartisan vote of 348-79, including 99 Republicans.)

Similarly, the Senate passed S.1619, the Currency Exchange Rate Oversight Reform Act of 2011, last fall by a bipartisan vote of 63-35.

What's clear is that Speaker Boehner is single-handedly thwarting the majority will of both Congress and the American people.  It's almost inexplicable that Boehner would stand in the way of such modest legislation to address China's mercantilism.

The Alliance for American Manufacturing (AAM) has repeatedly called for Boehner to allow H.R.639 to come to a vote.  Passage of such legislation would be an obvious step forward to provide a level playing field for America's manufacturers and their workers.

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