China Currency Peg Won't Spur Higher Import Duties by Obama Administration
Aug. 31 (Bloomberg) -- Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington, talks about the trade relations between the U.S. and China. The U.S. Commerce Department is likely to find that the Chinese government illegally subsidized aluminum imports worth $550 million, the Wall Street Journal reported, citing unnamed sources familiar with the situation. The decision could lead to higher import duties as early as next week, and could boost U.S. manufacturers' costs, the newspaper said. Hufbauer talks with Susan Li on Bloomberg Television. (Source: Bloomberg)
The Obama administration rejected a plea from U.S. manufacturers to increase duties on imports from China to compensate for the effects of a weak yuan.
Makers of aluminum and glossy paper said an undervalued currency acts as a subsidy for Chinese producers, letting them undercut their American competitors. The Commerce Department rejected those arguments in two decisions released yesterday.
The cases became the focus of advocates for manufacturers after the Treasury Department declined to label China a currency manipulator during a recession in which U.S. manufacturing employment stagnated. Lawmakers have vowed to seek legislation requiring the Commerce Department to act if it failed to do so on its own.
“The Commerce Department made its finding while still managing to ignore the elephant in the room, which is China’s currency manipulation,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement. “Once again, even when the opportunity is thrust into its hands, the administration has refused to take action.”
The complaints were rejected because China’s currency policy isn’t “specific to the enterprise or industries being investigated,” Ronald Lorentzen, the Commerce Department official responsible for the decision, said in a statement.
Duties on Aluminum
The department yesterday also imposed preliminary duties of as much as 137.65 percent on the import of aluminum products from China used for door and window frames, gutters, car parts and furniture. All but two groups of producers of the goods will face those highest duties.
While the aluminum duties affect $514 million in imports, imposing tariffs based on China’s currency valuation would have given many more manufacturers grounds to file complaints against their competitors in China.
“It’s now up to Congress to pass legislation to strengthen and modernize our trade laws so that the devastating impact of currency manipulation can be factored into penalties,” said Scott Paul, executive director of the Alliance for American Manufacturing, which represents steelworkers and steelmakers. “There appears to be strong bipartisan support for holding China accountable and passing legislation.”
The decisions released by the Commerce Department yesterday didn’t deal with whether China’s currency is undervalued. They focused instead on whether China’s currency policies represent a financial contribution to exporters and provided specific benefit to those exporting the aluminum and glossy paper.
One Price
“The exchange system of China is ‘unified,’ meaning that there is only one ‘price’ for every user,” the department said. Under global trade rules, subsidies must be meet certain standards in order to be countered by duties, including being targeted.
China is the second-largest trading partner with the U.S., and it ran up a $119 billion trade deficit with the U.S. in the first half of 2010, putting it on a course to exceed last year’s total of $227 billion
China announced in June that it would adjust its peg of the yuan to the dollar. China kept the yuan stable at about 6.83 per dollar from July 2008 to June 2010, after allowing it to gain 21 percent in the previous three years.
The yuan “remains substantially below the level that’s consistent with medium-term fundamentals,” Nigel Chalk, the International Monetary Fund’s China mission chief, said last month.
To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net.
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