China trade policies require multi-pronged counterattack

The gap is narrowing between what China’s currency should be valued at and the artificially low value the Chinese government has managed to maintain for years. That’s good news. Less encouraging is the recent decision by the Obama administration to follow the example set by the Bush administration and not pursue currency manipulation charges against China.

U.S. Sen. Rob Portman, R-Ohio, rightly criticized the administration for that decision. But while Portman can accurately describe himself as having initiated the first-ever legal case to be litigated and won against China before the World Trade Organization when he was President George W. Bush’s U.S. trade representative, it’s impossible to argue that the Bush administration was tougher on China than the Obama administration.

Currency manipulation is a serious issue. By keeping its currency artificially low, China keeps the cost of imports relatively high and the cost of its exports to other countries, including the United States, relatively low. Currency value is a factor — certainly not the only factor — in China’s ability to consistently export hundreds of billions of dollars more in good than it exports.

Last year, China’s trade deficit was nearly $300 billion to its favor, and much of that trade surplus was done at the expense of the United States. China’s trade continues to increase this year.

From significant to moderate

Meanwhile, the currency imbalance is beginning to moderate. The International Monetary Fund reported last week that the Chinese yuan is now only “moderately undervalued.” It had for years been labeled “significantly undervalued,” to the irritation of the United States and Europe. The U.S. Treasury said it declined to pursue manipulation charges against China in part because of the yuan’s appreciation against the dollar since June 2010. But it is going to have to keep a close eye on the issue. The yuan’s two-year rise against the dollar may have peaked; in the last six weeks, the yuan has lost 1.4 percent against the dollar.

The administration should also continue its much more aggressive stance regarding China’s propensity for subsidizing its output and dumping products on the U.S. market.

The administration has imposed tariffs on tires, pipe and steel in recent years, and just last month imposed import duties on solar- and wind-energy products from China.

The Obama administration has come under heavy domestic fire for its $535 million U.S. loan guarantee to Solyndra LLC, which failed. But while Solyndra was failing, China was pouring more than $30 billion into subsidizing its solar products, which were competing with Solyndra and other U.S. companies for market share.

While we would prefer the Treasury and the Commerce Department to take an all-of-the-above strategy in fighting China’s various unfair and potentially unfair trade policies, concentrating on dumping issues over currency issues at this point may not be the worst strategy.

The worst strategy would be to pretend that China is simply destined to win the trade-deficit battle with the United States ad infinitum.