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Government Relies on Faulty Trade Data for Policy Decisions, According to U.S. Coalition

(Washington, D.C.) (May 30, 2006) - The China Currency Coalition today challenged the recent conclusion of the Treasury Department that China was not manipulating its currency, stating that the department based those conclusions on faulty trade data. The coalition contends that the yuan is undervalued by approximately 40 percent and needs to be revalued promptly to avoid further damage to U.S. manufacturing, agriculture, and workers and to relieve dangerous pressure on the global financial system.

“Year after year, the Chinese government's official trade data report inflated values for China's imports and understated values for China's exports that cannot be squared with the trade data of China's forty largest trading partners and that coincidentally favor China's view that the yuan is not undervalued,” said counsel to the coalition, David A. Hartquist. “Why the Treasury Department persists in relying upon these skewed numbers provided by the Chinese government is difficult to understand. The result in our opinion is that Treasury's analysis of China's currency policy is terribly flawed,” he concluded.

Treasury's semi-annual currency report uses a ranking system based upon three weighting schemes of indicators to determine whether a country is manipulating its currency. Treasury's computations, attached at Table 1, incorporate the Chinese government's reported trade data and show China near the middle in each ranking scheme of the 24 countries listed. In the attached Table 2, the coalition's economic consultants at Georgetown Economic Services (GES) followed Treasury's own ranking methodology, but substituted China's reported trade data with the mirror trade data of China's 40 largest trading partners. This substitution moves China to the top of the list in Schemes I and II and to fourth place in Scheme III.

Observed Hartquist, “If Treasury would just take the simple step of replacing the 40 trading partners' mirror data for the Chinese government's unrealistic data, then Treasury's own ranking system would underscore that the yuan is substantially undervalued.”

As a further check, GES also adjusted Treasury's methodology and then applied Treasury's ranking system to the 40 trading partners' mirror data. The results in attached Table 3 place China first in all three of Treasury's ranking schemes and punctuate that China is undervaluing its currency.

“The revised methodology reveals far more sharply than Treasury's evaluation that China is manipulating the yuan in a flagrantly mercantilist fashion that is creating huge trade surpluses as well as enormous currency reserves and foreign direct investment for China at great risk and expense to the United States and the rest of the international trading community,” said Hartquist. “The Treasury Department needs to take a definite stand against China's currency subsidies that hurt U.S. manufacturers and workers.”

David A. Hartquist, an international trade attorney with 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.

The China Currency Coalition is an alliance of U.S. industrial, service, agricultural, and labor organizations. Its position is that the persistent undervaluation of the Chinese currency is a burden on the economies of the United States, China, and the entire world. For further information, see www.chinacurrencycoalition.org.

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