CHINA CURRENCY COALITION
FOR IMMEDIATE RELEASE
Contact: Meg Mullery 202.342.8439
China’s Rigged Currency Leads to Biggest Bilateral Trade Deficit in History
(Washington, D.C.) (December 14. 2004)—A coalition of organizations committed to maintaining a strong industrial base today stated that the U.S. trade deficit with China, which has reached an all time high, reflects the effects of the continued undervaluation of the Chinese yuan.
Commenting on today’s Department of Commerce announcement that the U.S. trade deficit with China was $16.8 billion in October, the China Currency Coalition noted that while the U.S. trade deficit with China grew by $1.2 billion, the deficit with the rest of Asia, including Japan, declined. According to the coalition, the deficit with China is likely to reach the $160 billion mark by year-end, a 28% increase over 2003.
“Each month, the bilateral trade relationship with China deteriorates, outstripping previous lows,” said David A. Hartquist, an international trade attorney and spokesman for the China Currency Coalition. “We will not see any improvement in the bilateral trade deficit with China unless and until China significantly appreciates its currency.”
The position of the coalition is that China’s undervalued exchange rate policy is undermining its own economy and threatens the global financial system. It points out that respected economists agree that China’s exchange rate is undervalued with estimates ranging from 15-85%. The coalition estimates that the degree of undervaluation is about 40%.
The undervalued exchange rate effectively subsidizes China’s exports and taxes China’s imports, according to the coalition. Furthermore, it makes investment in China cheap, thus accounting for the continued growth in foreign direct investment in China to an unprecedented level of $53 billion in the first ten months of 2004. China’s foreign exchange earnings now are approaching $515 billion, almost $100 billion more than the comparable period last year. As a result, China’s inflation rate has increased to over 5% compared to the deflationary period of a few years ago. China’s money supply is growing 17-20% annually and China has had to adopt administrative directives prohibiting bank loans to some industries in an unsuccessful effort to cool down the overheated economy.
“China’s undervalued yuan is having an even greater impact on trade. The untold story is that the bilateral deficit with China would be significantly higher than reported if ports were capable of handling more imports,” said Hartquist. “Each month untold ships remain unloaded, swelling the potential impact of imports on the manufacturing sector.”
The China Currency Coalition is an alliance of industry, agriculture, and worker organizations whose mission is to support U.S. manufacturing by seeking an end to Chinese currency manipulation.
David A. Hartquist is a senior member and head of the International Trade and Customs practice at the Washington, D.C. law firm of Collier Shannon Scott PLLC.