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U.S. Seeks to Redefine Trade Relationship with China: It Starts with Ensuring that China Plays by the Rules

by Thomas J. Gibson
President and CEO, American Iron and Steel Institute

The U.S steel industry is helping fuel America’s manufacturing renaissance by supplying steel to the automotive, energy, heavy equipment and rail industries, among other key sectors. In doing so, we are helping to increase U.S. exports of manufactured goods.

But that’s not enough. More needs to be done and it starts with securing a level playing field for its manufacturers.

Today, China poses some of the biggest challenges to achieving that level playing field. There is no denying that an economically successful China is in the U.S. national interest. But China’s increasing role in world trade also means that China has a growing responsibility to play by the rules.

Vice President Xi Jinping’s visit to our country represents an opportunity for a new generation of Chinese leaders to test the waters with the United States—China’s most important trading partner.

Because of America’s critical relationship with China, this visit also represents an opportunity for the United States. That means taking a pragmatic approach to this opportunity, and not shying away from openly discussing our top trade concerns, no matter how problematic they are. China’s failure to abide by its World Trade Organization (WTO) commitments is one of these prickly issues.

By failing to comply with WTO commitments, China continues to undercut U.S. domestic economic growth and job creation. Over the past decade since China joined the WTO, 2.8 million U.S. jobs have been lost or displaced due to our trade with China, including 1.9 million jobs in manufacturing alone[1] Economic Policy Institute). Our nation’s trade deficit with China in 2011 was a record-high $296 billion—three times what it was in 2000.

This breaks down into several key issues which should be addressed in frank and open discussions with the new generation of Chinese leaders.

From the U.S. perspective, the overarching concern is the Chinese government’s ownership and control of key sectors of its economy, which hinders their ability to move to a market-based system of economic activity. 10 years after joining the WTO, this fundamental barrier to free and fair trade has the effect of stacking the deck against American manufacturers, and providing an unfair competitive advantage to Chinese industries. This sort of state-provided competitive advantage runs counter to participation in a market-based economic system.

Currency Undervaluation: Despite its recent rise, China’s currency remains seriously undervalued by as much as 25-30 percent due to government interventions. This directly undercuts the ability of U.S. manufacturers to compete with China, and is costing many valuable American jobs. According to the Economic Policy Institute, “as many as 2.25 million American jobs would be created, enough to increase total U.S. employment by 1.6 percent, if China were to revalue the yuan.”

State-Owned Enterprises (SOEs): Upon its accession to the WTO, the government of China committed that it “would not influence, directly or indirectly, commercial decisions on the part of state-owned enterprises.” However, to take steel as an example, 95 percent of the production of the top 20 Chinese steel groups is state-owned or controlled, most often operating in accord with bureaucratic policies rather than market principles. This situation clearly highlights the need to address the market-distorting practices of SOEs by developing new rules that will enhance transparency and help reform these practices.

Export Restraints on Raw Materials: The WTO Appellate Body just last month ruled that China’s restraints on exports of vital raw materials fundamentally contravene the obligations China assumed when it joined the WTO. Such restrictions benefit steelmakers and other manufacturers in China, but they reduce availability and increase costs for manufacturers everywhere else.

While we as a nation welcome vice president Xi Jinping to the US, there is an urgency to hold his government accountable on critical policy and trade issues.

For the US manufacturing sector, the risk of doing nothing is very high.

[1] Economic Policy Institute

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