March 10, 2011

M11-009

To: SPEEA Council

 

From: SPEEA Legislative and Public Affairs Committee

 

Subject: Pre-Submitted New Business: Support Policies That Prevent Manipulation of China's Currency

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Background

 

The current Chinese 5-year plan calls for substantial investment in aerospace, mostly through two Chinese aerospace companies, AVIC and COMAC, that already employ hundreds of thousands of workers. Recently, COMAC launched the C919 aircraft program to be a direct competitor to the 737. The C919 contracts with all the major suppliers used by Boeing and Airbus. China can subsidize the first several airplane models with billions of dollars in development funds, similar to the support Europe gave to the Airbus A300, A310, and later models.

 

Boeing CEO Jim McNerney is former Chair of the China-US Business Council. In 2009, Boeing Commercial President Scott Carson said Boeing executives were debating whether to cooperate with China or compete with China. In this context, "cooperate" is generally understood to mean "move more work to China."

 

China uses coordinated industrial policy to promote its domestic industry. This includes direct and indirect subsidies, control of purchasing decisions by domestic airline customers, offsets - where China demands foreign investment in China to build their domestic industries, and currency manipulation.

 

China is uniquely positioned to set its own currency at any level they want. China manipulates its currency because it can, and because it creates a trading advantage for its domestic industries. By making their currency artificially cheap, China can sell their aerospace products at a 40% discount, compared to fair market prices. This is a huge market advantage for China that encourages US producers to outsource work from the US to China.

 

America can address the issue of currency manipulation in several ways. In 2004, the AFL-CIO challenged China's policy under section 301(d) of the Trade Act of 1974. Unfortunately, the US Trade Representative rejected that claim. Other policy actions have focused on specific industries or products, such as tires or steel where Chinese trade policies distorted markets, costing jobs in America.

 

At various times, American officials have argued, pleaded, or lectured China about currency manipulation. China agreed to revalue its currency at least twice - once in 2005 when China ended its fixed dollar exchange rate, and recently at a G20 meeting.

 

Legislation in the last Congress (HR 2378/S.3134) would have authorized a countervailing duty. The House version had bi-partisan support, with 140 co-sponsors, including 13 from California, and Peter DeFazio from Oregon. The Senate version had 19 co-sponsors, including Senator Sam Brownback from Kansas. No one from Washington State or Utah co-sponsored the bills.

 

Motion

It is moved that: THE SPEEA Council endorse a policy of supporting legislative and policy actions that prevent or discourage China or other countries from manipulating the exchange rate of its foreign currency.

 

PRO

         1. Currency manipulation distorts trade patterns and hurts American workers.

         2. So far, efforts to prevent currency manipulation have failed.

         3. Recovery from the recession is held back as long as new jobs are not being created in America.

CON

         1. American consumers enjoy artificially cheap goods, as long as China manipulates its currency.

         2. China could retaliate by selling dollars, and weakening the exchange rate for dollars, which would raise prices in America.

         3. China could withhold vital goods or services that could hurt our economy or our security.