March 10, 2011
To: SPEEA Council
From: SPEEA Legislative and Public Affairs Committee
Subject: Pre-Submitted New Business: Support
Policies That Prevent Manipulation of China's Currency
____________________________________________________________________________
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.