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A Chinese bank employee counts U.S. dollar notes as stacks of Chinese Yuan and the U.S. dollar are seen next to him at a bank in Shanghai. China said Thursday it will no longer peg its currency to the U.S. dollar.China currency move may aid U.S. companies
Value change will raise prices of Chinese exports, giving automakers, manufacturers a break.
A worker welds a car interior at the Geely auto factory in Ningbo, China. Chinese exports are cheaper to sell abroad.
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WASHINGTON -- China moved Thursday to revalue its currency, allowing the yuan to change value relative to the United States dollar for the first time since entering the World Trade Organization five years ago.
While the move will raise the price of many goods made in China and sold in the United States, it could also pay dividends for U.S. manufacturers such as Detroit's automakers. Just how much depends on how other Asian nations, such as Japan and Korea, react.
The artificially low value of currencies in China, Japan and Korea makes American-made goods more expensive and harder to sell in Asia, while making China's exports cheaper to build and sell abroad, U.S. businesses complain.
Detroit automakers have argued that favorable exchange rates allow Asian competitors like Toyota, Honda and Hyundai to put hundreds of dollars worth of extra equipment on cars sold in the United States, without raising prices. And in the next few years, Chinese automakers Chery and Geely plan to export low-priced cars for sale in the United States, posing another challenge to Detroit automakers.
"The action in China should set off a chain of events to bring things into more of a balanced situation," said Stephen Collins, president of the Automotive Trade Policy Council, a Washington group that monitors international trade agreements for General Motors Corp., Ford Motor Co. and DaimlerChrysler AG.
But the slight adjustment in the yuan, which for now is trading at 8.11 to the dollar instead of 8.28, is not likely to calm jitters in Congress about the effect of China's exports on the U.S. economy.
America's trade deficit hit a record in 2004 and continues to grow, and China is accounting for a larger slice of it.
Scores of lawmakers hoping to stem a tide of U.S. job losses -- especially high-paying manufacturing jobs -- have lined up behind a proposal to put pressure on China to let the yuan float freely on international currency markets.
For Detroit's automakers, the developments in Washington are a mixed blessing. If China revalues its currency, it could make it harder for other Asian countries to keep their currencies artificially low. But trade tensions with China -- if they continue to grow -- would put their substantial investments in the world's fastest growing car market at risk.
A bid by a state-owned Chinese oil company to buy the American oil giant, Unocal -- adding national security fears to the underlying trade tensions -- encouraged more lawmakers to take a harder line on China's currency policy.
Lawmakers Thursday credited the threat of trade sanctions for China's move.
"Today's announcement gives momentum to our efforts to address with China its ongoing failure to abide by trade agreement rules," said Rep. Mike Rogers, R-Brighton. "Clearly, congressional and administration pressures have helped move this process forward."
The continued loss of manufacturing jobs, including thousands of proposed cuts at Detroit automakers and auto parts makers, and China's growing trade surplus with the United States, has more and more groups like the National Association of Manufacturers and the United Auto Workers calling for tougher trade practices.
Sen.Charles Schumer, D-N.Y., fearing more manufacturing job losses in New York's Upstate region, where GM has two plants, wrote a bill that called for temporary across-the-board tariffs of 27.5 percent on all Chinese products entering the United States if China did not revalue the yuan.
A similar bill, written by Rep. Phil English, R-Pa. and supported by House Ways and Means Committee Chairman Bill Thomas, R-Calif., is called the United State Trade Rights Enforcement Act. It would also levy duties on Chinese goods in response to unfair trade practices as well as monitor the counterfeiting of trademarked products.
"We're going to tell China we're not going to let them cheat our economy or take our jobs," said Rogers. "This bill is essential just to have a shot at fair competition."
Rep. John Dingell, D-Dearborn, has introduced a bill that will make free trading of currencies a United States trade negotiating objective in every new trade pact, force the administration to report on currency manipulation to Congress and seek compensation for harmed industries, including auto and steel makers. Dingell's bill would apply to Japan and Korea, as well as China.
"The United States must take action, or other nations will continue to have an unfair economic advantage and harm the U.S. economy, specifically our auto industry," Dingell said.
Economists believe the yuan is undervalued by as much as 10 percent, allowing China to limit imports, expand exports, and keep manufacturing wages artificially low.
Robert Scott, a trade scholar with the Economic Policy Institute, a labor-funded Washington think tank, said the United States has lost 1.5 million jobs -- mostly in manufacturing -- since 2001 because of its trade deficit with China. Scott estimates Michigan alone has lost 51,000 directly due to trade with China.
"These governments choose by policy to manage currency values to give their exports a competitive edge in global markets," said Collins of the Automotive Trade Policy Council. "They are designed to be export machines."
You can reach Jeff Plungis at (202) 906-8204 or jplungis@detnews.com.
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