Amid Washington’s latest tax and budget battles, few headlines were garnered by the Club for Growth’s recent announcement opposing the Senate-passed bill to fight currency manipulation by U.S. trade competitors such as China. But its decision was terrible news for the beleaguered American economy on at least three major counts.
First, the currency bill, which House Republican leaders are blocking despite its strong bipartisan support, would help domestic industries whose products compete against artificially underpriced goods from market-rigging countries. Thus it’s vital for reorienting the economy away from reckless spending and borrowing, and toward productive activity such as manufacturing. Second, as a major funder of conservatives’ political campaigns, the Club has strong clout with Republican legislators, including those thinking of bucking leadership and forcing a vote on the bill. Third, the Club’s position on the bill reflects deep ignorance about manufacturing.
The Club insists that the bill’s supporters err profoundly in believing that “cheap imports from China are harming our nation’s manufacturers.” The reason? “China ships intermediary goods and raw materials to the United States, not just final consumer products. These cheap goods are used by our nation’s businesses to produce final products that can be sold at competitive prices.”
It all sounds sensible — except much of American industry consists of those intermediary-goods producers, including sectors that build high-value, capital- and technology-intensive parts and components for advanced manufacturing systems. Gauging their total output and employment is hard because official U.S. data don’t always break down intermediary and final goods precisely. Available figures, however, make clear the former’s enormous contributions to industry and the entire economy.
Last year, for example, manufacturing generated nearly $1.72 trillion of U.S. economic output — about 11.80 percent of the $14.55 trillion pre-inflation total. Employment stood at slightly more than 11.5 million.
That same year, companies that turn out ball bearings, fasteners, valves and other fabricated metals products, and firms that apply specialty coatings and sophisticated heat treatment to them, shipped some $202 billion worth of goods (a slightly different measure of production) last year, and employed more than 680,000. Basic chemicals shipments topped $211 billion and sustained nearly 143,000 jobs. For semiconductors alone, the figures were more than $71 billion worth of goods and nearly 197,000 jobs. Sectors such as machine tools, aircraft and auto parts, and plastics and resins, push the intermediary output and jobs numbers much higher.
Even more revealing, U.S. trade practices have long followed the Club’s recommendation of enhancing U.S. competitiveness with cheap imported manufacturing inputs. At least they’re the inevitable result of the broader, one-way open trade policies strongly endorsed by the Club. But both domestic industry and the entire economy have paid dearly.
Since Chinese currency manipulation began in the mid-1990s, for example, America’s global manufacturing trade deficit has jumped 217 percent. During that same period, the U.S. Business and Industry Council calculates, imports’ share of America’s home markets in advanced manufactures are up from roughly 24.50 percent to more than 38 percent. These higher deficits and greater import inroads, in turn, depress production and job creation, and help fuel that astronomical national debt the Club claims to abhor.
Can American competitiveness be restored solely through the Club’s alternative of “lowering taxes on corporate income, capital gains, and dividends”? That would help. But much more is needed to offset the massive subsidies provided by China and other mercantile countries for manufacturers — and financed, ironically, by multitrillion-dollar foreign exchange hoards fed by the predatory practices the Club keeps ignoring.
House Republicans, then, and indeed most other conservative leaders face a clear choice on the currency manipulation bill — and upcoming trade decisions crucial to sustainable, production-led recovery. They can recognize the damage created by current policies and push for change. Or they can keep heeding the industrial Know-Nothingism of the Club for Growth.
• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website, www.AmericanEconomicAlert.org.