In These New Times

People’s Daily

19th September, 2010

An increasingly vocal movement is rising in America to force China to appreciate the RMB. Hundreds of congressmen jointly wrote a letter to the Obama Administration calling for action. The U.S. Congress held a two-day public hearing to discuss legislation to “punish” China. Various interest groups were waving flags and shouting battle cries. U.S. Treasury Secretary Timothy Geithner also made an unprecedented tough gesture. Furthermore, congressmen all united behind the banner of protecting American jobs. But, is this what they are really thinking of?

Since the outbreak of the financial crisis, the U.S. economy has continued to decline. In particular, the soaring unemployment rate has reached a very high level, exceeding the critical point of 10 percent in 2009, and it is now still as high as 9.6 percent.

With only less than two months ahead of the U.S. midterm congressional elections, the congressmen who cannot find an effective method to solve the unemployment problem — the key to keeping their seats — have chosen the RMB issue as their target in the country’s dense trade protectionist atmosphere.

According to the logic of congressmen and some economists, the artificially undervalued RMB exchange rate has given China’s export products unfair comparative advantages, which widen the trade deficits between China and the United States, and subsequently have taken away job opportunities in the United States.

Many reasonable Americans refuted the logic in theory and practice. Philip Levy, a scholar at the American Enterprise Institute said economic data shows the RMB exchange rate is not the reason behind the trade deficit between China and the United States, nor is it necessarily associated with the unemployment rate in the United States.

On Sept. 15, a piece of less-noticed news came from the other side of the earth when American congressmen were heatedly discussing how to force the RMB exchange rate to appreciate at a hearing of the House Education and Labor Committee. China’s Anshan Iron and Steel Group Corp (Ansteel) signed an official agreement with U.S-based Steel Development Company (SDC) in Beijing to build a steel mill in the United States.

Under the agreement, the two sides will jointly establish a plant to produce deformed steel bars with an annual output of 300,000 tons in Amory, Mississippi in the southeastern area of the United States. This is Chinese enterprises’ first steel production project in the United States.

However, the project, which will not only stimulate the American economy but also create job opportunities, encountered unexpected obstacles in the United States. Fortunately, the U.S. government finally approved the investment, setting a precedent for a Chinese steel company to build a steel mill in the United States.

The success of Anshan Iron and Steel Group reminds us of a large number of Chinese companies’ failure to open up shop in the U.S. market. For example, China National Offshore Oil Corporation tried to acquire the Union Oil Company of California; Huawei tried to purchase U.S. software supplier 2Wire Inc. and Motorola Inc.’s wireless equipment unit; and Northwest Nonferrous International Investment Company tried to purchase a tiny Nevada gold mining company Firstgold, but all the proposed purchases were blocked by the U.S. government.

From a purely economic point of view, these investments would have helped to accelerate the U.S. economic recovery and create many job opportunities for the American people. However, because they were from China, the U.S. congressmen who had given top priority to increasing employment seemed to forget the severe unemployment problem in their country, and started playing the “U.S. national security” card again and again.

The U.S. congressmen and interest groups are opposed to Chinese currency policies and have been forcing China to revalue the RMB, and their reason is that the undervalued RMB has led to job losses in the United States. When Chinese companies planned to invest in the United States, which would create a large number of job opportunities, they still said no, and their new reason is that these investments will threaten U.S. national security.

Derek Scissors, an expert on the Chinese economy at the U.S.-based Heritage Foundation, explained that the U.S. opposition to China in terms of the RMB and investments seems to be self-contradictory, but in fact, the ultimate purpose is the same, which is to harm China.

They make use of the RMB issue to impose punitive tariffs on Chinese goods and wipe out China’s export industry. In addition, deterring Chinese companies from investing in the United States can also hinder the development of those companies.

However, Scissors warned that if Congress and its allies only want to damage China’s interests, they have a free hand to do whatever they like. But if they still want to help the U.S. economy ride out the storm, then they must rethink the policy toward China.

By Ju Hui, a reporter at China Youth Daily, translated by People’s Daily Online