Chamber of Commerce president: China currency bill will provoke retaliation

posted at 6:11 pm on October 17, 2011 by Tina Korbe

The Senate last week passed a bill that would require the U.S. to impose tariffs on Chinese imports to compensate for Beijing’s cheap trade tricks. On the surface, the bill sounds like a wise idea. If China artificially devalues its currency to lower the price of its goods (and so make them more attractive to U.S. consumers), aren’t we justified in an attempt to bring that price more in line with reality? Maybe — but Chamber of Commerce head Thomas Donohue today offered an important reminder of why the bill is a bad idea:

Thomas Donohue, the president and CEO of the influential business group, told a group of Dow Jones reporters and editors that U.S. policy makers should resist embracing protectionism. While understandable in times of economic stress, an attempt to force China’s hand could have negative repercussions for U.S. firms, he said, as Beijing seeks to maintain full employment for its citizens.

“They want to keep all those people working and if that was forced on them somehow … they would simply just drop the prices as low as they have to to keep those folks working,” Mr. Donohue said. …

Mr. Donohue said it is important for U.S. officials to press China to speed the pace of appreciation — it’s a “great idea to ring their bell and them know we’re still worried about this” — but protectionist policies could backfire.

“Keeping them as a very positive force in the things we’re trying to do in the world is important, and sticking a stick in their eye is not a smart idea,” he said.

In other words, as has been oft-repeated, this will start a trade war.

Don’t buy the lie that the China currency bill is a jobs bill, either. As U.S.-China Business Council president John Frisbie has explained, “The main reason for the decline in manufacturing jobs [in the U.S.] is productivity, not China. The U.S. makes more with fewer people, primarily because of productivity and technology advances. … Yes, China needs an exchange rate that better responds to global trade flows. But China’s exchange rate is probably not as significant a factor in the U.S. trade deficit that some make it out to be.”

Also consider that Chinese imports support their fair share of jobs for non-Chinese workers (a.k.a. workers in the United States, as well as in other countries).

Because China’s blatantly unfair practice of undervaluing its currency is understandably unpopular, the bill to slap sanctions on China enjoys bipartisan support in both the House and the Senate. Still, the House should resist passing it. If Sen. Chuck Schumer and others in support of the bill seriously want to credibly demand that China stop its devaluation, the best bet would be to address the U.S. deficit and debt and to reverse Barack Obama’s failed economic policies so the Federal Reserve won’t have any excuse to continue to intentionally devalue the U.S. dollar through quantitative easing. In other words, Schumer and company should remove the plank in the U.S.’ own eye before worrying about the speck in China’s.

Again, Republicans and Democrats alike are guilty of bashing China — and the electorate responds when they do. As Ed pointed out a while ago, that’s one reason Sen. Harry Reid moved the China currency bill ahead of the president’s jobs bill. But, as international trade attorney Scott Lincicome puts it, China-bashing is “good politics, bad consequences.” As voters, we need to educate ourselves on this issue so we don’t respond viscerally to what sounds good in theory but would be disastrous in practice.


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This stick isn’t what they’re worried about. Its their own overheating economy, fueled by hot capital inflows from the cheap money US of A, that they’re really worried about. This stick in their eye is an annoyance – their inability to keep asset prices from surging is a much more pressing concern for them.

ernesto on October 17, 2011 at 6:17 PM

OT: CNN defending Holder on fast and furious right now…

pathetic…making the gop look like they are just being political…

cmsinaz on October 17, 2011 at 6:24 PM

cmsinaz on October 17, 2011 at 6:24 PM

So a few hundred Mexicans cops and soldiers had to die under a scheme that used stimulus money in an attempt to frame the American people, what’s it to you? Teabagger.

Bishop on October 17, 2011 at 6:28 PM

Bishop on October 17, 2011 at 6:28 PM

i want my country back!

truly pathetic the way they are defending this…

cmsinaz on October 17, 2011 at 6:30 PM

If Sen. Chuck Schumer and others in support of the bill seriously want to credibly demand that China stop its devaluation, the best bet would be to address the U.S. deficit and debt and to reverse Barack Obama’s failed economic policies so the Federal Reserve won’t have any excuse to continue to intentionally devalue the U.S. dollar through quantitative easing.

Tina, you’re asking them to actually fix the problem instead of grandstanding and tossing band-aids on gaping wounds. You’re funny you are!

Tim Zank on October 17, 2011 at 6:32 PM

This is a fight that needs to be had, but it should not be undertaken as part of election-year posturing. Obama is a lame duck, the Congress is fractured, and the economy is in the tank; this is not the right time to throw down with China.

Lawdawg86 on October 17, 2011 at 6:37 PM

The problem is that China has already has poked our eye blind; this group is asking us to let China continue with the other eye.

The people that are defending China in this case (by asking for the bill to be killed) might as well be members of China’s own Communist Party. They act to defend China’s sovereign interests, while asking for more danegeld from the US.

The appeasement of China must stop.

sethstorm on October 17, 2011 at 6:51 PM

Lawdawg86 on October 17, 2011 at 6:37 PM

There is no better time than now to lay the foundation for handling China in a new way. Preparing for that fight with China is not something you can do too soon.

Supporting the Communist Party of China was the first mistake, letting them survive as they are is the second mistake.

sethstorm on October 17, 2011 at 6:58 PM

I’m no fan of the Chamber of Commerce. I think they’re on the other side. But on this matter, I think they’re right.

Bugler on October 17, 2011 at 7:08 PM

This is a tiny bit above my pay grade but when does the time come when retrenching and pulling the temple down makes sense. Genuine question. Any informed takers?

Mason on October 17, 2011 at 7:41 PM

Lower the domestic tax burden to cheapen good here and we will be in a better position to deal with a Chinese trade war if need be.

Daemonocracy on October 17, 2011 at 7:57 PM

No discussion about this is complete without mentioning how China “manipulates” their currentcy. They do it by lending us money.

Hochmeister on October 17, 2011 at 8:20 PM

So we want higher prices? Is that the goal? If a trading partner wants to sell us stuff at a cheap price how is that bad? What if their actual cost was lower and they weren’t manipulating their currency. Would we still need legislation? Tariffs are paid by consumers and they won’t bring manufacturing jobs to the rust belt.

echosyst on October 17, 2011 at 8:49 PM

echosyst on October 17, 2011 at 8:49 PM

That’s like asking if we want more shoddy products. The US would adapt to a future beyond China, in spite of the effects of the trade war. China would find themselves collapsing from the lack of monetary support for their regime.

If the Chamber of Commerce is complaining about the bill, it’s being written the right way.

sethstorm on October 17, 2011 at 9:17 PM

Don’t buy the lie that the China currency bill is a jobs bill, either. As U.S.-China Business Council president John Frisbie has explained, “The main reason for the decline in manufacturing jobs [in the U.S.] is productivity, not China. The U.S. makes more with fewer people, primarily because of productivity and technology advances. … Yes, China needs an exchange rate that better responds to global trade flows. But China’s exchange rate is probably not as significant a factor in the U.S. trade deficit that some make it out to be.”

Also consider that Chinese imports support their fair share of jobs for non-Chinese workers (a.k.a. workers in the United States, as well as in other countries).

Someone didn’t just drink the coolaid they’ve been baptized in it.

DFCtomm on October 17, 2011 at 11:48 PM

OK, so exactly what do we not understand about the Communists using Capitalism as a weapon to further the advance of international Socialism?

If the Chamber of Commerce is complaining about the bill, it’s being written the right way.

sethstorm on October 17, 2011 at 9:17 PM

I agree. I believe that the Chamber of Commerces around the country have done a great deal of good in promoting business and development…but have done some pretty bone-headed things, too, in furthering their own self interests, often shooting themselves in the foot. For example, building housing developments that no one wants to live in, and over-constructing commercial buildings (strip malls, high rises) that chronically lack tenants. I would also agree with the “Greens” that some of what they’ve done is detrimental to our environment.

To me a big question is, when does it reach the point where the interests of business interfere with our quality of life, our standard of living and our national best interests/sovereignty?

Obviously, there needs to be checks and balances.

Dr. ZhivBlago on October 17, 2011 at 11:51 PM

By intentionally devaluing their currency (if true), they are effectively selling to the US at a discount. The net effect is to export wealth to the US at the expense of Chinese consumers.

Congress is asking China to chase a moving target (downward!) propelled by Bernake.

deadman on October 18, 2011 at 12:23 AM

The problem is that China has already has poked our eye blind; this group is asking us to let China continue with the other eye.

The people that are defending China in this case (by asking for the bill to be killed) might as well be members of China’s own Communist Party. They act to defend China’s sovereign interests, while asking for more danegeld from the US.

The appeasement of China must stop.

sethstorm on October 17, 2011 at 6:51 PM

I agree with you, but the appeasement isn’t going to stop and really it’s too late to be worried about it.

Watch this video about the big dog robot. Notice how it moves like a living animal? Now tie that video in with “Watson” that smoked the Jeopardy champions. Imagine drone robots the size of the big dog picking strawberries 24/7/365. These drones will only have enough basic programming to be able to move, but “Watson” will flit from robot to robot by wireless to receive verbal instructions and queue commands for the drones.

The writing is on the wall. The days of human production are numbered. It’s best we look to the future and try to figure out how this is all going to work socially, since that’s going to be a nightmare. It might also be a good ideal to stop importing unskilled labor that is only going to be a tremendous burden on an already overtaxed system.

DFCtomm on October 18, 2011 at 12:31 AM

If you think China’s manipulation of its currency is unfair…. I don’t know what to say. Maybe to ask, unfair to whom?

Aquateen Hungerforce on October 18, 2011 at 1:44 AM

China’s blatantly unfair practice of undervaluing its currency

If China is blatantly and unfairly undervaluing its currency, why doesn’t the US take it up with the WTO, an organization for just this purpose and to which both countries are parties?

DarkCurrent on October 18, 2011 at 2:30 AM

This chart shows the USD-RMB exchange rate vs. USA-PRC trade deficit. Notice that since 2007 the RMB has appreciated significantly against the USD, while the US trade deficit with China has just gotten worse.

DarkCurrent on October 18, 2011 at 2:47 AM

DFCtomm on October 18, 2011 at 12:31 AM

That’s where I can agree. If the work is only worth the wages of desperate people, the more humane thing is to remove the human from the process.

I’m not sure what that means for people that do such work – but even China is starting to agree with automation. Foxconn raised its compensation, reduced its humans working there, and then added more machines.

Human production isn’t going to disappear, it’s only going to disappear from the more routine tasks. Given the increase in automation, the next thing is figuring how best to connect the displaced/dislocated with what is in demand.

As with China, the dialogue will have to be about them giving in a bit more, even if it means they lose face. If they want to be taken seriously, that means that they have to welcome less authoritarian ways.

sethstorm on October 18, 2011 at 4:35 AM

In other words, as has been oft-repeated, this will start a trade war.

Point of order – the fact that the ChiComs have manipulated their currency means the trade war has already begun.

I vote for “All of the above” response; the better to squeeze the most-”successful” of the Communists.

Steve Eggleston on October 18, 2011 at 7:25 AM

If we defeat them in a war, then we could demand all of our debt be forgiven in the treaty.

That ought get the libs’ blood boiling…

jeffn21 on October 18, 2011 at 8:56 AM

That ought get the libs’ blood boiling…

jeffn21 on October 18, 2011 at 8:56 AM

Considering they have nukes it might not just be the libs whose blood would end up boiling.

DarkCurrent on October 18, 2011 at 12:00 PM