Commerce Department Ruling on China Trade Practices Imminent

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The US argument with China over its currency looks set to roll on as the markets wait to hear whether the US Commerce Department will investigate if China’s currency practices subsidize its exports and warrant U.S. duties in response.  A Reuters article this week said the case is being brought by US manufacturers against Chinese-made aluminum products used in the US construction and automobile sectors. The United States imported more than $500 million of the aluminum goods last year and the US Steelworkers and aluminum extruders in nine states are bringing the case to apply countervailing duties.

But the US has been here before, many times, as a BBC article points out. US Treasury Secretary Tim Geithner released a postponed report into China’s currency policy last July which avoided labeling the country a “currency manipulator” for fear it was too inflammatory. That accusation would have provided a basis for efforts within the US Congress to pass punitive trade sanctions against China but the administration settled for diplomacy and a Chinese assurance they would allow gradual adjustment. In fact, the Yuan has moved just 0.5% since the Chinese “unpegged the currency in July leading to calls from many quarters for tougher action. In a Bloomberg article, Dan DiMicco, CEO of steelmaker Nucor, called for the administration to enforce the rules and make sure people (the Chinese) play by the rules or we will not be able to turn this around (loss of US jobs and manufacturing capability).

Will the US take action on the currency issue? Probably not, even in an election year with their position in the polls looking severely weakened and having set targets to reduce the trade deficit by increasing exports it is highly unlikely the administration has the courage to take on China. They may yet surprise us with a late show of backbone but the likelihood is they will huff, puff and tinker with trade laws but not actually go to the heart of the matter and address currency. As we go to press the signs are for a back down on the issue yet gain.

Just as damaging to bilateral trade, particularly of US high tech goods, is a less discussed issue arising from Chinese requirements for Indigenous Innovation. According to an interview in The Tampa Tribune with Frank Sanchez, undersecretary for international trade at the U.S. Department of Commerce , indigenous innovation requires a company, if they want to sell to the (Chinese) government, to have created the innovation in China. Not surprisingly most US companies have designed their products in the US but the Chinese are essentially saying if you want to sell it, you have to make it China. The US still invests more in research and development than any country in the world, clearly that is another “top slot the Chinese are looking to take by fair means or foul.

–Stuart Burns

Comment (1)

  1. Steve Weiner says:

    Too late…Commerce made its announcement on this yesterday. They won’t consider currency undervaluation in trade cases.

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