Legislation Would Stop Currency Manipulation

May 13, 2005
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GRAND RAPIDS — Not all trade is free trade for a small manufacturer. Often, it's not fair trade. And sometimes it's not even close to being a trade-off.

Take China, for example.

Last year, Chinese imports to the United States topped $162 billion and created the largest trade deficit this nation has ever recorded with a single country. China exports six times as many goods here as it imports from the United States.

And the gap got bigger early this year when China exported nearly 40 percent more goods to the United States in January and February compared to the same months last year, while U.S. exports to China fell by almost 10 percent over the same two-month period.

The culprit behind this trade imbalance is well known: the undervalued Chinese yuan. By keeping its currency unrelated to market forces, Chinese manufacturers are able to undercut American firms, sometimes charging a U.S. client less for a finished part than a local company can pay for the raw materials to make it.

A bill in the U.S. Senate, SB295, supposedly aims to change that situation by adding a tariff of 27.5 percent to all goods arriving here from China. Economists have estimated that the yuan is undervalued from 15 percent to 40 percent, so the Senate picked 27.5 percent as a fair figure that might level the playing field.

The bill has bipartisan support and both senators from Michigan — Debbie Stabenow and Carl Levin — are signed on as sponsors. Leadership has set a trade deadline; the chamber has to vote on the measure by July 27.

Grand Rapids Spring & Stamping CEO Jim Zawacki hopes the bill makes it through Congress and onto the president's desk for signing. His firm supplies metal components to automakers and other companies and he has lost domestic business to offshore suppliers.

"By stopping the (currency) manipulation, they would not import as much, so there would be more customers available for me," said Zawacki, whose firm has been in business for 45 years.

Zawacki said his company did $5 million worth of business with a local firm each year as recently as six years ago. But today that firm isn't one of his customers.

"Their products are now made in Korea and China. And that is just one (company) of many," he said. "We just want a level playing field as a manufacturer. There are so many unfair things that are going on related to trade, and our government is in a bind."

Peter Perez, president of machinery-maker Carter Products in Walker, can address one of those unfair things, namely patents and intellectual property in relation to Asian firms. A few years ago, the U.S. and Canadian patent offices granted Carter a patent on a new stabilizer band-saw guide system. The system keeps the rear of a saw blade rigid but lets the front of the blade twist and turn, which allows for accurate contour cuts.

Perez said Carter Products spent more than $20,000 to secure both patents for the exclusive product known as the Carter Stabilizer.

"Shortly after the patents were issued, a copy of the Carter Stabilizer produced in Asia came into the U.S. market. They even copied our installation instructions in English, word-for-word," said Perez, whose firm turns 76 years old next month.

"I fought them and they retreated," he added.

But Perez wondered why he should be forced to spend even more money to combat piracy when he plays by the rules — especially when the company that steals his idea is located in a country that belongs to the World Trade Organization, which requires its members to respect valid patents.

"Other nations have national policies and programs designed to strengthen their manufacturing and exporting. We must do the same," said Perez.

"It is incumbent on Congress to provide a coherent federal response to the changes underway in manufacturing and to support technological innovations fundamental to retaining our manufacturing strength," he added.

So Zawacki and Perez are holding hands on the issue, as most local small manufacturers likely are. But will the Senate follow through on the bill? Or is the bill just trade bait — political posturing to provide the appearance of doing something?

"First, I don't think it will ever happen," said Zawacki of the bill becoming law. "Our politicians get cold feet at the last minute. There is too much pressure from major multi-national corporations, who have investments overseas, being put on the politicians.

"Secondly, the liberals will tell you that (passage) would be adding a tax on the poor, because now they couldn't buy from Wal-Mart because their goods will go up 27 percent," he added. "But it sure would be part of a plan to help save manufacturing in the United States."     

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