Lobbying: The China Card

A dustup over trade policy

For decades, Washington's business lobby has led the charge for trade liberalization, with companies standing shoulder to shoulder in support of tariff busting and free-market pacts. But thanks to activism by smaller companies, that front could be crumbling.

A rift within the National Association of Manufacturers over trade with China points to a deepening division in the business community that reaches far beyond the Beltway. The split pits a variety of manufacturers, who want the U.S. to combat the trade imbalance caused in part by China's currency manipulation, against some of their generally larger and more global peers that are benefiting from the undervalued yuan. "It is an extremely troubling sign," says Stuart Eizenstat, a former adviser to President Clinton and a law partner at Washington's Covington & Burling. "The universally accepted notion that the business community would always be there for free-trade initiatives is beginning to splinter."

In September, NAM's 250-member board of directors will consider endorsing legislation that lets U.S. manufacturers seek redress against China and other countries that manipulate currency to gain an export edge. Caterpillar (CAT ), General Electric (GE ), Cargill, and others that benefit from cheap Chinese labor and exports oppose the bill.

But other NAM members had their own ideas. Droves of smaller companies showed up at a June meeting of the group's trade policy committee. With help from others such as The Timken Co. and U.S. Steel, they outvoted the multinationals who benefit by sourcing materials cheaply in China by a 75-46 margin, endorsing the Chinese Currency Act of 2005. "China is waging a mercantile war, and we're being pacifists," says M. Brian O'Shaughnessy, president of 675-person Revere Copper Products in Rome, N.Y.



The move capped two years of planning by manufacturers that are suffering job and revenue losses as customers, often big manufacturers, move operations offshore. "These mostly small companies assumed our trade associations were doing a great job of representing us," says David Frengel, director of government affairs at Penn United Technology Inc., a precision tooler in Cabot, Pa., with about 500 employees. "We found out that our trade association policies were being dictated by the folks who show up at meetings, mainly big multinationals who had full-time government affairs staff in Washington."

Frengel organized smaller companies to push for their own agenda, taking advantage of NAM's practice of giving each member a vote in policymaking decisions. "We are seeing change not only within NAM," says Frengel. "The impact is already being felt in Congress. The big guys don't like it, but we have no choice. It's a survival issue."

Larger NAM members declined to comment on the record or didn't return calls. But some agreed privately that NAM's thousands of small members could be the most important voice to join the growing free-trade debate.

Regardless of how the board votes in September, NAM President and CEO John Engler will find himself in a tough spot. Small companies, says Frengel, have been leaving NAM because they have either gone out of business or objected to the group's trade policies.

But the multinationals, which provide the bulk of NAM's $23 million annual revenue, fear that a tough stance could lead to retaliation against their operations in China. "There's no law we can pass here that can fix China's currency if the Chinese government doesn't want to fix it," says Engler.

By Lorraine Woellert

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