A coalition of business lobbying groups, including the National Association of Manufacturers and the Society of the Plastics Industry Inc., is planning a formal trade case asking the Bush administration to push China to adopt a more market-based currency policy.
The Fair Currency Alliance argues that China's decision to peg its currency to the dollar violates international trade agreements that prohibit currency manipulation, and in effect makes Chinese exports artificially cheap. The group has retained the Washington law firm of Collier Shannon Scott to develop the case.
Frank Vargo, vice president of international economic affairs for Washington-based NAM, said he believes China's currency is undervalued 20-40 percent. U.S. manufacturers are very vocal about the issue, he said.
``[For] most NAM members, when it comes to trade, China is all we hear about, and it's not good,'' Vargo said in a Feb. 12 panel discussion in Washington.
``We're under enormous pressure from all our members who basically just want to shut the border, but we can't do that. The NAM vigorously resists protectionism.''
Vargo told a forum sponsored by Global Business Dialogue, a Washington business think tank on globalization issues, that China is not the major reason the United States has lost several million manufacturing jobs.
But he said raising the value of China's currency, the yuan, would have a significant positive impact on industries that compete directly with imports, such as plastics and machine tools.
The trade deficit in plastic products went from $4.2 billion in 1997 to $14 billion in 2002, according to Washington-based SPI.
Another speaker at the forum, however, said that raising the value of the yuan by 20 percent would have only a modest impact.
Nicholas Lardy, a senior fellow at the Institute for International Economics in Washington, estimated it would shave only about $10 billion from China's estimated $125 billion trade deficit with the United States.
He said the United States is likely to run a trade imbalance as long as consumers and the government either don't save or engage in deficit spending, requiring the U.S. to finance its debt with overseas capital.
Wayne Morrison, an economist with Congressional Research Service and author of a December CRS report on China's currency peg, said it is unlikely the United States will be able to force China to do anything on the issue.
Offering his personal opinion, and not speaking for CRS, Morrison suggested the government is better off pursuing other goals, like getting China to abide by the terms of its entry into the World Trade Organization or ending subsidies of state-owned enterprises.