by James Parks, May 25, 2006

The Chinese government’s deliberate undervaluing of its currency is an anchor “that is dragging down American manufacturing and the middle class,” AFL-CIO Secretary-Treasurer Richard Trumka says in a letter published today in the Wall Street Journal.

Trumka wrote to the newspaper in response to a May 15 editorial praising a U.S. Treasury Department report on unfair trade practices that did not designate China as a country that manipulates its currency.

An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of Chinese goods by 40 percent and subsidizes exports, putting U.S. companies at a disadvantage. The lack of currency flexibility has been a major factor in American job losses and a trade deficit with China that hit $201 billion last year.

In his letter, Trumka says:

What is nonsensical is for the Wall Street Journal, the great proponent of free trade, to defend China keeping its currency undervalued by 40 percent by claiming that there is no free market in currencies. Currency manipulation is one of the primary reasons for the massive bilateral trade imbalance between the United States and China, as well as for the flood of investments by U.S and other multinational companies. On top of the Chinese government’s record capital investments in manufacturing, foreign direct investment (FDI) in the country increased from $46.8 billion in 2000 to $60.3 billion in 2005.  Seventy percent of China’s FDI is in manufacturing, with heavy concentration in export-oriented companies and advanced technology sectors.  The dangers of this model of development are apparent: job and technical capacity loss in the U.S., growing inequality and political and financial instability in China, and the accumulation of nearly $1 trillion in U.S. dollar assets by the Chinese government.  This is also a development model based upon the brutal repression of workers’ rights and human rights.

The Chinese government understands that actions speak louder than words.  Since the administration refuses to act, Congress should step in and pass H.R. 1498, the bipartisan Ryan-Hunter bill, which would give the administration stronger tools to use in addressing the Chinese government’s manipulation of its currency.

In 2004, the AFL-CIO filed a petition calling on the Bush administration to take immediate action to impose trade remedies against China until that country enforces workers’ rights. The administration rejected the petition, but the AFL-CIO union movement is set to demand that the administration press China on workers’ rights and value its currency more accurately, moves that could reduce the U.S. trade deficit with China.

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