Yesterday, the House passed (by a 348-71 margin) a bill that would allow the Department of Commerce to levy anti-dumping duties on goods coming from countries that undervalue their currencies. The bill does not single out China, per se; rather, it singles out any country with an undervalued currency.
Will this bill pass both chambers of Congress and receive the signature of our president? Probably not, but the bill does give Democrats some leverage as they head home to fight for re-election; they have taken a tough position on jobs and trade. So what should the manufacturing community make of this bill and what are America’s larger prospects from an international trade perspective?
The reality that this bill represents a stick that has previously not seen the light of day — could have some powerful ramifications for countries like China because it’s the first time a bill on this subject has passed an entire House of Congress. In other words, it may very well have the likely effect of placing additional pressure on China, precisely the bill’s intent. Will the US Treasury Department and the wider Obama Administration use this bill as a means to place that additional pressure on the Chinese authorities? We don’t know; perhaps not.
Today, China does not abide by a host of WTO rules (e.g. subsidies, intellectual property violations and the list goes on) but the US has also violated WTO rules as well (see this post on the practice of zeroing). But on balance, the US probably adheres to WTO rules more so than the Chinese. As you will recall from a couple of weeks ago, a 5000-page petition recently filed by the USW outlines many infractions incurred by China (some of which probably have greater validity than others).
Would this bill, if passed, receive the blessing of the WTO? Probably not, but anyway, one might consider that point irrelevant. What does matter involves the fundamental question does China (and any other country that fixes its currencies arbitrarily) continue to violate the principles laid out in its membership application to the WTO? And do they have the right to continue operating as they have? Certainly some manufacturers such as GE and Baxter International would say yes (these organizations also have large manufacturing operations in many of the countries in question) but others argue that the real solution to the problem of “the trade wars involves a simple principle we can only control that which we can control.
We thought we’d suggest a couple of What-If scenarios on the topic of trade. We know this remains a divisive issue for which many MetalMiner readers hold oppositional points of viewÂ¦
First, in the words of Robert Samuelson in a recent Washington Post op-ed piece entitled, “The makings of a trade war with China, he provides one What-If scenario. What is the US’s choice: “resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous.
Second, back to the Ëœwe should pursue only that which we can actually control our own behaviors line of thought.’ This thinking suggests the problem lies in our own making our own dollar has a low valuation because our deficit remains so high. We have lost control of our own government spending and have taken the path of further taxing the top 2-3 percent of the population that actually stimulates growth and creates jobs. If we had our own house in order, the thinking goes, what countries like China do with their currency would have a much smaller impact on our own economy.
What do you think?