The Growing Outcry Over China's Export Boom

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Chinese ExportsChina's trade surplus with the rest of the world ballooned to $28.7 billion last month, a sign that the country's promises to adjust its currency haven't yet begun to bite. That could spell increasing friction with Washington, where lawmakers facing reelection in November are increasing demands for retaliation.

China's customs bureau said exports to the U.S. and other countries increased 38.1% in July to $145.5 billion, while imports were up 22.7% at $116.8 billion.

The surplus was the highest in 18 months and comes after China announced June 19 that it would allow its currency, the yuan, to move higher against other currencies like the dollar. The yuan had been pegged at a fixed dollar rate since last 2008.

Maybe a One-Month Distortion?

"Do I think Congress will be upset by today's numbers, which included a 10% rise in Chinese exports to the U.S.?" asks Mark Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "Of course, they will be upset about it, but what can they do? China is a member of the World Trade Organization, and we can't just retaliate against some imaginary violation."

Chandler says one reason for the sharp increase may be that China ended export tax subsidies across a wide range of products in July, which prompted many businesses to move up export shipments to June. That may have distorted the trade figures by showing a sharp increase in U.S. imports from China in June, he says.

But that isn't deterring some representatives from leaping into action. Rep. Brad Sherman (D-Calif.), has introduced a bill to strip China of the most-favored-nation trade status it was awarded in 2001, making it eligible for reduced customs duties.

"The U.S.-China trade relationship is horrendously lopsided and it has not lived up to the promises of those who encouraged us to give preferential trade treatment to China," Sherman said in a statement.

"Only at the Beginning"


In addition, a group of a U.S. senators signed a letter last week saying there's "no doubt that the Chinese government is manipulating its currency to keep its value lower than it would otherwise be, which gives its exports a significant rice advantage over U.S. manufactured goods."

Treasury Secretary Timothy Geithner said last week that it's too early to know how much the Chinese will let the yuan rise. "They're only at the beginning of the process, and what matters is how far and fast they let it move," he said. The Obama administration decided in July against branding China a currency manipulator as many in Congress had demanded.

According to Chandler, the yuan has appreciated about 0.9% against the dollar since the June announcement. He says the currency market is pricing in a 12-month rise for the yuan of about 1.5%, which is far below the level it was allowed to increase on annual basis in the period from 2005 until 2008.

A Surplus of 7% of GDP?


William Cline, a senior fellow at the Peterson Institute of International Economics, says the Chinese would have to allow the yuan to appreciate by 15% to target a current account surplus -- trade and financial flows -- of about 3% of GDP. The International Monetary Fund is projecting that by 2015 the Chinese current account surplus will be more than 8% of GDP.

"If the Chinese were to appreciate the yuan at a steady pace of 10% a year for a couple of years, that would go a long way toward solving the resulting imbalances," Cline says. "What they have done so far is certainly not sufficient by itself, but it opens the door to having a continued appreciation of the currency over time."

Cline says his research "throws cold water" on claims that exchange rates don't have a major impact on trade flows. American exporters, led by the U.S. Chamber of Commerce, have pressed the Obama administration to take more steps to get the Chinese to raise the value of the yuan.

Preventive Measure?


But Chandler says such steps are misplaced. Not only are the Chinese unlikely to respond positively, he says, but the record of U.S. trade flows shows that the U.S. had a bigger deficit with China in 2008 after three years of yuan appreciation than it did in 2005 when the currency started its rise.

He says the main reason for China's announcement of a new yuan policy in June may have been to stop the flow of speculative investment funds into China by investors who expected a quick yuan appreciation.

"The Chinese succeeded in dampening speculation of a revaluation, and now that many people have given it up, that's when I think they will do it," Chandler says. Still, he adds that the appreciation may be limited to only about 2% to 3%, far below the level Congress is demanding. If that's the case, expect the calls for retaliation to get only louder.

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halkovichr

thats why we are in the resession we are in ,, all the jobs left and they are not coming back we have a problem here in america we have people that want clean air ,,clean gulf, u name it it all costs money ,china care less about clean air or poluted water,,keep going walmart and buying there damn junk,,then bitchin about it ,,no ones to blame but the people them selfs ,congress sure isnt going do anything ..so the people will have to ,,let the just sit on the shelves ,,same with the junk jap cars

August 12 2010 at 1:57 AM Report abuse rate up rate down Reply
prognesub

One of these days your sons and daughters will be sent to fight China. A new
military superpower thanks to a lot of help from the EU and US power elite
with all their investments.

August 12 2010 at 12:18 AM Report abuse rate up rate down Reply
sfamilyent

We have been lax over the past four decades in ensuring that the international trading game is being played fairly by all countries involved. While other countries have been restricting access to their markets, subsidizing their domestic production and targeting our market for their goods and services - we have been allowing it... We are now experiencing the consequences of trying to operate on a free trade basis while other countries have been rigging the game. Change the policy to have fair trade and competition... Then again, you could always just not buy goods and services produced in other countries...

August 11 2010 at 8:27 PM Report abuse +1 rate up rate down Reply
bassmaster7773

corporations go there,, because our policies enable , econonmics,of guns n butter,, but other countries know better,,,they only buy what they need, and cant make themselves,,,,, americans want to make millions,,, and spend dimes,, not supporting any jobs and tressured entitlements,,,,
i say start with all these imported cars,,,, millions of lost jobs,,,
put a minimum $1500 fee on them to go directly into social security,,medicare,, and unemployment,,,, ( $500, each ) or 10% of list price,,,whichever is higher,,, i dont let foreign cars park in my driveway,,, and would never high out service work to anyone ariving in a foreign car,,, these imports are far worse than any damage illegal imagrants are causing,,,,, better support u, s, jobs while they're here,,,,,

August 11 2010 at 2:30 PM Report abuse rate up rate down Reply
ajgorm

WTO was a bad idea. Can you fire a cheat ?

August 11 2010 at 10:21 AM Report abuse +1 rate up rate down Reply
ajgorm

Imaginary violation. china is part of the WTO so everything is fair...RIGHT ! not....Hey when you peg your currency what is up ? Everyone in the WTO can peg their currencies ??/ What rules do they have seperate rules for different countries. If the Yuan was left alone then their prices would go up and ours down. Het either play by the same rules or there is no WTO . Sooooo it is just a piece of paper.

August 11 2010 at 10:18 AM Report abuse rate up rate down Reply
Jeff

That is what happens when you think you are all-powerfull, we should have never outsourced our jobs...now what do we do? The term Rust Belt mean anything? It would take decades to get back to producing our own goods. China is in the driver seat, we can't stop them because we have no other way to get products we need. Of course, I am talking about basic needs, not high price shoes.

August 11 2010 at 10:15 AM Report abuse rate up rate down Reply
wurkinman1

We as a country need to take care of US....we used too...but no more

August 11 2010 at 9:57 AM Report abuse +1 rate up rate down Reply
joyce

DON'T BLAME CHINA,IT IS US CORP'S THAT WENT OVER THERE FOR CHEAP LABOR,NOT TO SELL ITEMS CHEAPER,NOT FOR BETTER QUALTY,BUT FOR CORP. PROFITS AND NOT FOR COMMON STOCK DIV'S.THAT YOU AND I CAN HOLD,BUT STOCK CLASS ONLY FOR CORP. EXEC' OUTRAGES COMP.FOR THE TOP BRASS.WHY SHOULD THES PRES.'S/CXX'S.GET MILLONS EACH YEAR PLUS OTHER COMP'S.OUR CORP'S ARE DOING NOTHING FOR THIS COUNTRY TO HELP IT.

August 11 2010 at 9:08 AM Report abuse rate up rate down Reply
szemaitis

CONGRESS WHEN ARE YOU GOING TO WAKE UP AND TAKE CARE OF BUSINESS HERE IN THE U.S. ARE YOU WATEING UNTILL ITS TO LATE AND UN ITED STATES IS THIRD WORLD BECAUSE THATS WHAT WERE HEADING FOR GET YOUR HEAD OUT OF YOUR ASASES

August 11 2010 at 8:58 AM Report abuse rate up rate down Reply