This will be the Country and the factors that will ultimately influence the world and the USA monetary policy.

Date:   10/12/2005 5:51:30 PM ( 19 y ago)

What to Do About China and the Yuan
By LOUIS UCHITELLE
Published: October 12, 2005
Richard T. Wilkey, who runs a small Wisconsin company that makes cutting blades for lawn mowers and harvesting equipment, worries that he will soon be vulnerable to competition from China. But he is afraid that by the time he gets help from Washington, it may be too late.

Andy Manis for The New York Times
Richard T. Wilkey, owner of Fisher-Barton.


Andy Manis for The New York Times
One of Mr. Wilkey's parts plants, in Sun Prairie, Wis.
As a result, Mr. Wilkey, a longtime member of the National Association of Manufacturers and a loyal Republican, finds himself at odds with a number of much bigger industrial companies and with President Bush over how to deal with China. He wants the administration to pressure the Chinese to increase significantly the value of their currency now, not months from now.

"If we get their currency valued as it should be - 40 percent higher than it is today - that will give all of us a measure of protection," said Mr. Wilkey, who is president and principal owner of Fisher-Barton, the company based in Waterton, Wis., that manufactures the cutting blades and other parts for farm equipment.

Revaluation means the Chinese would have to charge more in dollars to earn the same revenue in their currency, pushing manufacturers there to make their exports more expensive in the American marketplace. That would ease the pressure on Mr. Wilkey and on other small manufacturers. Many big manufacturers export to the United States from factories in China and benefit from a weak yuan.

The growing rift among manufacturers over trade policy comes with Treasury Secretary John W. Snow in China this week hoping to persuade its leaders to move more quickly on the currency front. While the rift is a challenge to the administration's more cautious approach, it also is a warning signal to the Chinese of a potential protectionist backlash in the United States if they do not revalue the yuan more rapidly.

The administration still favors gradual revaluation, achieved through negotiations, says Tony Fratto, acting assistant secretary of the Treasury. So do multinationals like Whirlpool, which makes microwave ovens in China and exports them to the United States.

The unified support from the business community that President Bush enjoys on almost every other issue breaks down over China policy.

"I don't think people like me want protectionism," Mr. Wilkey said, insisting that he, like the president, is a free trader. "But we do want the administration to level the playing field."

That soothing language masks some significant differences. The National Association of Manufacturers, whose 12,000 members include small and large manufacturers, has endorsed the Bush administration's go-slow approach.

With that policy in place, the Chinese in July raised the value of the yuan against the dollar by just over 2 percent and promised further revaluations. There have been no follow-on steps, however, and small manufacturers have responded by throwing their support to a bill in Congress that would penalize the Chinese for their inaction.

The N.A.M., in its policy statements and lobbying activities, resists this pressure. It sides with the administration's go-slow approach, partly because big multinationals dominate the trade association, paying most of the dues, and partly because the association's recently appointed president, John M. Engler, a former Republican governor of Michigan, supports the administration generally.

Under his direction, the N.A.M. for the first time even endorsed a Supreme Court nominee, John G. Roberts Jr.

Mr. Engler has managed to forge a compromise, at least for now, one that seeks to minimize the disagreement among manufacturers on the China currency issue. "No manufacturer, large or small, thinks it is efficient for one country to undervalue its currency," he said in an interview. But moving too fast, he added, could anger the Chinese and "precipitate a trade conflict."

Mr. Wilkey would take that risk, he says, to protect Fisher-Barton's $85 million a year in sales from what he sees as the danger of unfairly subsidized Chinese competition. The bill he supports in Congress would penalize the Chinese by making "currency manipulation" a trade violation.
The artificially low yuan would be classified in United States trade law as an unfair government subsidy. If Mr. Wilkey or any manufacturer demonstrated damage to sales as a result of the subsidy, countervailing duties could be levied on the offending imports.

That is a relatively tough, though less aggressive response than the one proposed by Senators Charles E. Schumer, Democrat of New York, and Lindsey Graham, Republican of South Carolina. Their bill, introduced in February, promised to impose a 27 percent tariff on all Chinese imports if China failed to revalue its currency by at least that much within a year of the bill's passage.

The two senators withdrew their proposal after the Chinese acted in July. They have threatened, however, to revive it next month if Beijing does not move soon to strengthen its currency further. President Bush has promised to veto any such measure.

Many small manufacturers, hoping to step up the pressure on the Chinese, have meanwhile joined Mr. Wilkey in rallying around the bill that would make "currency manipulation" an unfair government subsidy. The bill was introduced in April by Representatives Duncan Hunter, Republican of California, and Tim Ryan, Democrat of Ohio. Some small manufacturers have even joined ad hoc trade associations to push for passage.

"We need laws that allow injured parties to seek remedies," said David Frengel, the director of government affairs for Penn United Technologies, which makes precision dies at a factory in Saxonburg, Pa. Mr. Frengel represents Penn United at the N.A.M. but also is a leader of the recently organized Manufacturers for Fair Trade. What its members share is a resistance to moving production offshore, often because they are too small to do so.

By contrast executives at Whirlpool, a major multinational with big appliance-making operations not just in the United States but around the world, shudder at the antiglobalization sentiments of their smaller brethren. The microwave ovens that Whirlpool sells in the United States come from factories in China.

"We are not rushing to revalue the yen," said Stephen J. Duthie, a Whirlpool spokesman. He argues that rapid revaluation would repeat in China the "shock therapy" that damaged the Russian economy when it floated its currency too quickly in the early 1990's.

The opposition at Whirlpool to rapid yuan revaluation is shared by Caterpillar, the manufacturer of heavy construction equipment based in Peoria, Ill., and by Cummins, a diesel engine and truck parts manufacturer in Columbus, Ind.

Douglas R. Oberhelman, a group president at Caterpillar, said his company was "going to be a player in China," and the United States has to deal with the currency issue "in an orderly fashion."

F. Joseph Loughrey, president of Cummins, takes a similar approach. The company's global operations, he said, would on balance "gain a little, but not a lot, from currency revaluation in China," and the right thing to do is to "move step by step."

That gradualist approach draws scorn from Sandra Westlund-Deenihan, president of Quality Float Works Inc. in Schaumburg, Ill. Her company, founded by her grandfather, manufactures spherical steel floats, similar in shape to those in toilet flushing mechanisms, but finely machined to precise specifications for use in hydraulic pumps and complex machinery.

The Chinese have tried to compete against her in the American market, but unsuccessfully so far. "You could push your finger through the metal they use," Ms. Westlund-Deenihan said. "And it is not corrosion resistant."

She describes herself as a lifelong Republican and a staunch supporter of the Bush administration. But on the currency issue, she wants the yuan strengthened substantially before the Chinese figure out how to manufacture high-quality industrial floats. Prompt revaluation is her stated position as a new member of the N.A.M. board, seated alongside the reluctant representatives of Whirlpool, Caterpillar and Cummins.

"I do not want to bow to China in my lifetime," Ms. Westlund-Deenihan said in an interview. "I do not want to see them taking over in every area of manufacturing."

Faced with this dissension, Mr. Engler has engineered a temporary détente. His compromise puts the Ryan-Hunter bill aside for the moment - without opposing it - and declares that the N.A.M. members, big and small, favor as a first step a more modest bill introduced last July by Representative Phil English, Republican of Pennsylvania.

That bill, adopted in the House and now before the Senate, says that China would be subject for the first time to countervailing duties, but it does not specify the offenses for which they could be applied.

In the debate among manufacturers preceding the compromise, Mr. Frengel pushed for rapid revaluation of the Chinese yuan, with the Ryan-Hunter bill as the club to make that happen. Late last month, however, he and other leaders of the small manufacturers agreed to endorse the English bill, which authorizes sanctions, although it does not specify currency manipulation as a trade violation.

"We would have preferred support from the N.A.M. for Ryan-Hunter," Mr. Frengel said. "But we did succeed in getting the big manufacturers to agree, on the record, that negotiating with China might not be enough."





 

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