Upholstered furniture imports from China are hurting U.S. polyurethane foam manufacturers like never before, according to speakers at the Polyurethane Foam Association's recent spring meeting in Washington.
``In the past 12 months, we've lost ground,'' said PFA President Bobby Bush at the meeting. ``Our foam pounds are down, because of the rapid increase in the importation of finished goods containing foreign foam materials.''
Bush said the PFA will fight to obtain corrective action against Chinese imports, and keynote speaker Thomas Palley said pressure from associations such as the PFA could make a great difference in reversing the $201 billion (1.61 billion yuan) U.S. trade deficit with China.
Reducing that deficit, however, will be much easier said than done, according to Palley, former chief economist for the U.S.-China Economic and Security Review Commission.
``The major problem is China's undervalued currency exchange rate, and that's something that you as an industry can do nothing about, though you can apply pressure to have something done,'' he said.
The Chinese exchange rate not only guarantees a flood of low-priced Chinese goods in the U.S., but also encourages other eastern Asia nations to undervalue their own currencies to defend their export trade, according to Palley.
``If I'm Korea, I'm not going to re-evaluate my currency exchange if China, the gorilla in the region, will not,'' he said.
Also, China is extremely lax about complying with World Trade Organization rules, illegally paying subsidies to export product manufacturers while placing tight controls on the goods that can be imported to the country, Palley said.
Too often, government officials, economists and the media blame the trade deficit on U.S. manufacturing, citing poor productivity, or on U.S. consumers for buying instead of saving, according to Palley. Nothing could be further from the truth, he said.
``In productivity, we're the world leader, and we far exceed China,'' he said.
As for U.S. buying habits, the problem is not too much spending but the composition of the spending, he said. ``When I walk into a Target or a K-Mart, the foreign-made goods are always cheaper than the American-made ones,'' Palley said.
``There's no savings problem in this country, there's a pricing problem due to undervalued currency.''
In short, the failure is one of U.S. government policy, according to Palley. ``China is pursuing its national interests,'' he said. ``We have failed to pursue ours.''
Too often the U.S. government has been satisfied with ineffective or inadequate measures to address currency exchange problems, Palley said.
``We need China to make an exchange rate re-evaluation, not an exchange rate floating,'' he said. He gave the example of Japan in the early 1980s, then still a fairly closed economy.
When the U.S. demanded that Japan open its capital markets, it did so, and Japanese investors anxious to diversify their holdings immediately bought all the foreign currencies they could. When that happened, the yen fell - making Japanese goods even cheaper in the U.S. market.
The Chinese market now is in a similar situation - and the yuan could fall further if financial markets are opened without a re-evaluation of the currency, Palley said.
Furthermore, while U.S. manufacturers can press for Chinese currency re-evaluation, they have to realize that powerful interests will be fighting them, he said.
``Sixty percent of Chinese exports are produced by multinational corporations that benefit from the undervalued exchange rate,'' he said.
The U.S. retail industry also has a vested interest in keeping the yuan undervalued, in a way that was unheard of 25 years ago, Palley said.
``The retail distribution network has a funnel into the heart of America,'' he said. ``The Wal-Mart distribution mechanism is so effective that if you don't follow it, you're out of business. Wal-Mart is your political opponent, so you have your work cut out for you.''
There are several options for relief the PFA can pursue, according to Bush and PFA Legal Counsel James McIntyre. The association plans to pursue all those avenues and called on its members to aid in the fight. The options include:
* Petitioning the International Trade Commission to remove tariffs on imported toluene diisocyanate and polyols, both of which are crucial in the manufacture of U.S. polyurethane foam.
* Presenting the Internal Revenue Service with evidence that the flexible PU foam used in China's upholstered furniture exports is manufactured with chlorofluorocarbons and other ozone-depleting chemicals. The IRS levies excise taxes on foam produced with ozone-depleting chemicals, McIntyre said, and a unit of the agency is pursuing companies from all over the world that make it.