AMERICA HAS China in its sights. Fortunately, it’s a trade war and not a shooting war that is about to erupt. The Chinese rebuffed Treasury Secretary John Snow’s efforts to get them to increase the value of their currency relative to the dollar. After the secretary’s visit to China, a spokesman for that country’s central bank announced, “We will keep the Yuan stable according to the current policy.” That means that the Chinese currency will remain pegged to the dollar for the foreseeable future, and at an artificial rate that gives Chinese exporters a significant advantage over American firms in both U.S. and overseas markets. The Chinese did agree to use the flood of dollars they are accumulating to accelerate their purchases of U.S. Treasury bonds. Although that concession will stimulate growth here by keeping interest rates down, it has done nothing to calm textile firms, furniture manufacturers, auto parts makers, and trade unions who know that the trade deficit with China is over $100 billion annually and rising (and that China has replaced Japan as the country that runs the largest trade surplus with America). Several of these companies have formed The Coalition for a Sound Dollar, and are threatening to file a complaint with the World Trade Organization, relying on a provision that prevents countries from influencing exchange rates so as to “frustrate the intent” of WTO trade agreements. Meanwhile, Senators Chuck Schumer, Elizabeth Dole, and Lindsey Graham are preparing a bill to offset the undervalued Chinese currency by imposing a 27.5 percent tariff on all imports from that country.
It matters little to these firms and workers that American companies with substantial investments in China are benefiting from its undervalued currency, which gives them an edge in international markets. Or that consumers are feasting on low-priced, made-in-China goods. Wal-Mart accounts for a full 10 percent of the overall trade deficit with China.
