Trade Pressure On China From US Rushes Along

If China is not going to be named a “currency manipulator” perhaps some other form of designation with a similar effect will do. The U.S. Commerce Department may soon begin an investigation into whether the People’s Republic has subsidized aluminum prices on metal exported to the US. The cause of the possible action is that China has kept its currency from floating and that has caused a dispute between the US and the world most populous nation over how aluminum is priced in the open market.

A spokesman for Commerce told Reuters that “we will be announcing our initiation decision on the petition as a whole.” The metals probe is a backdoor way for the federal government to get at the currency manipulation problems. The Treasury does not have to give China the negative designation in public, a move that could cause huge trade problems between the two nations. The flow of imports from China could be reduced at a time when America does not have the manufacturing capacity or low labor costs to replace them. The result of that would almost certainly be a rapid ratcheting up of consumer prices.

Direct pressure on China over the currency matter has not worked. Officials from the People’s Republic have told Treasury Secretary Geithner during a visit to the mainland that the decision to change the way the yuan is valued will be their own. China President Hu Jintao told President Obama the same thing on his visit to Washington for multinational nuclear arms talks.

The Commerce Department has come up with a clever flanking manuever which will undermine China’s bargaining power ever so slowly even if its involves months of visits to the ITC or even the International Court of Justice at the Hague. One or two major decisions that affect China’s ability to sell manufactured good to US companies will pressure the country’s factory owners to petition Beijing on the currency decision. The Commerce action  may have the effect of turning China’s businesses against the government. That may be a round about way to move the value of the yuan an it may add a year to the decision process, but it also may work.

Douglas A. McIntyre