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A New High in the U.S./China Trade Deficit Is A New Low for American Manufacturing, Workers, and Agriculture

(Washington, D.C.) (February 13, 2007) — The Department of Commerce reported today that the U.S. trade deficit with China grew to a new high of $232.5 billion in 2006, up from $201.5 billion the previous year, according to a coalition of U.S. manufacturers, agricultural producers, and workers. The China Currency Coalition further noted that the U.S./China bilateral trade deficit exceeded that with any other U.S. trading partner.

The coalition plans to focus on Capitol Hill and the new Congress to promote legislation that will provide some defense for U.S. manufacturers, workers, and farmers who must compete against the misaligned yuan. Many international economists believe that China�s currency is undervalued by about 40 percent. This undervaluation is significant because it effectively levies a tax and therefore increases the cost of U.S. exports to China, while giving Chinese producers an automatic price break on their exports to the United States. Producers in China benefit from what is, in effect, a substantial government subsidy, which allows them to enter the global marketplace with a huge price advantage.

Explained coalition spokesperson David A. Hartquist, �Americans are hurt coming and going, and many U.S. companies have concluded that the only way they can compete is by moving their operations to China. What is needed is legislation that will enable U.S. companies, workers, and farmers�consistent with international law�to defend themselves against the negative impact of undervaluation.�

In July 2005, China appreciated its currency by about 2% and since then has allowed the yuan to increase by an additional 3.7%. Any nominal strengthening of the yuan against the dollar, however, has been largely or even completely cancelled by the relative levels of inflation in China and the United States, according to the coalition.

The distortive effects of China�s subsidized currency are extensive. China has now amassed foreign exchange reserves of over $1 trillion, far surpassing any other country�s reserves. China�s subsidized currency also attracts foreign direct investment into China.

This flow of investment has adversely affected U.S. employment in agriculture and manufacturing. Since January 2001, for example, 3 million U.S. manufacturing jobs have been lost. Said Hartquist, �The insistence of China upon keeping an artificially weak yuan is preventing market forces from acting and is creating dangerous imbalances.�

Since 2004, the China Currency Coalition has been a major force behind focusing government, media, consumer and international attention on the inequities resulting from China�s persistent undervaluation of its currency. The coalition, whose membership includes American industrial, service, agricultural and labor organizations, has continued to work with the Bush Administration and the U.S. Congress to encourage the government of China to alter its monetary policy and value the yuan in line with international trading rules.

David A. Hartquist, a senior partner and head of the international trade section of the Washington, D.C. law firm of Kelley Drye Collier Shannon, serves as counsel to the China Currency Coalition. Its co-chairs are AFL-CIO Secretary-Treasurer Richard L. Trumka and Doug Bartlett, Chairman of Bartlett Manufacturing Company, Inc., in Cary, Illinois, also a member of the United States Business Industry Council. For more information on the coalition, visit www.chinacurrencycoalition.org.