Last updated: March 23, 2010 5:44 pm

US business hardens stance on renminbi

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Bill Hickey has a long perspective on US manufacturing. From his office at the Chicago headquarters of Lapham-Hickey Steel – whose customers include John Deere and Caterpillar – he has watched the sector cope with many competitive threats in the 30 years since he inherited the business.

But in the past decade, he has seen swaths of US manufacturing wither in the face of Chinese competition. “We’ve seen our customers from auto-parts manufacturers to kitchen appliance-makers just disappear,” he says. “We’re seeing the hollowing out of American manufacturing because the politicians don’t get it.”

Mr Hickey sees China’s currency policy as part of “a mercantilist plan” to gain market share in the US. “If their currency is 40 per cent below its real market value, they can undercut US producers and that’s what’s eroding the manufacturing base here,” he says. “That’s their plan. Their government is basically subsidising that. The currency policy acts as a subsidy and an import tax.”

Fuelled by a soaring unemployment rate and tinged with plenty of populism the debate over how the US should respond to the concerns of manufacturers such as Mr Hickey is again high on the agenda on Capitol Hill. The latest chapter will come on Wednesday as China’s exchange rate policy is the focus of a hearing before the House of Representatives’ ways and means committee.

But there are signs that the dynamics of debate are changing. Manufacturers and their lobbyists in Washington have frequently pushed hard for the US to take a tougher stance on China’s currency policy. Suddenly, however, they have found more allies across a corporate America that, with an eye on China’s potential as a market, had previously been less willing to take on Beijing. Behind it is rising disaffection with China on a range of issues, from its efforts to tilt government procurement contracts towards Chinese companies that practise “indigenous innovation” to its ineffectiveness at protecting intellectual property rights, to currency policy.

“I don’t think the Chinese government can count on the American business community to push back and block action,” says Myron Brilliant, vice-president for international affairs at the US Chamber of Commerce.

This shift has given impetus to efforts in Congress to adopt legislation that would impose punitive measures on China if it does not let the renminbi appreciate. Pressure is also growing on the US Treasury to brand China a “currency manipulator” in a report due out on April 15 – a move that could lead to sanctions against Chinese imports.

Charles Freeman of the Center for Strategic and International Studies, a Washington think-tank, said even though many companies might be dismayed by the prospects of a trade war, there were “less people willing to stand up and sing the praises” of the US-China economic relationship.

Some parts of corporate America are still urging caution. Erik Autor, vice-president and international trade counsel at the National Retail Federation, says China is a sourcing location and good potential market for US retailers and “both of these could be jeopardised if we don’t handle China trade and economic issues carefully”.

“We cannot come out guns blazing and feel that we can achieve something helpful,” he says.

Other companies that source low-cost components from China would also be adversely affected if the country changed its currency approach.

Charles Cannon, chief executive of JBT, which makes food-processing machinery and airport equipment, says his company’s profits would be squeezed if the renminbi appreciated, potentially forcing him to search for low-cost components elsewhere. “We might not have to leave China but our margins would be affected,” he says.

US banks also seem reluctant to press for more aggressive policies towards China, even though many have been disappointed by Beijing’s sceptical attitude towards them after the financial crisis.

“A more market based [renminbi] is important – mostly for China. But as a remedy for trade imbalances, the focus on the currency is demonstrably overstated,” says John Dearie, executive vice-president for policy at the Financial Services Forum in Washington. “The far more effective approach to tackle the trade imbalance is to further open China up to US goods and services.”

Back in Chicago, Mr Hickey says he believes Beijing will be forced to change its currency stance. “The largest customer that China has is the US,” he says. “There has to be reciprocity: there’s no good relationship where one partner sucks the other one dry.”

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