Yuan Change Right For Manufacturers

August 8, 2005
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LANSING — The leading advocate for the state's manufacturing companies supports the Central America Free Trade Agreement (CAFTA) and hopes the Chinese government will follow through on its recent promise to let its currency float.

The Michigan Manufacturers Association (MMA), representing nearly 3,000 members, was pleased to learn that the Chinese yuan wouldn't be directly anchored to the U.S. dollar.

"We believe that it will make many of our products here in Michigan more competitive over there and, quite frankly, their products a little more expensive over here," said Charles Hadden, MMA vice president of government affairs.

Hadden told the Business Journal that China has to be an active but fair partner in trade, and the first step for the emerging economic giant to reach that point is to let the yuan float.

Of course, the proof is in the pudding and Hadden said the MMA would keep a close eye on how China handles the yuan. Allowing their currency to float could eventually open more markets there for the wide variety of product makers the MMA promotes.

China was the seventh-leading export destination for products made in Michigan last year. The Michigan Economic Development Corp. said state firms shipped $607 million worth of goods to China in 2004.

Hadden said the MMA isn't calling for any further government action to be taken against China, at least for the time being. But the association believed a Senate bill that threatened to add a 27.5 percent tariff to all Chinese goods imported to this country nudged the Chinese government to act on the yuan and also motivated President George Bush, this nation's top trade negotiator, to take action.

"At that point, it suddenly becomes out of the hands of the President, who is doing the negotiations. You know if a tax ended up on my desk, I'd have a hard time vetoing it. I think that kind of box helps the President at times," said Hadden.

The free trade agreement links the U.S. economically to six countries in Central America: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. Supporters of the legislation have said the pact would further open those markets to goods manufactured here. None of the six nations were among the state's top 40 export markets last year.

American exports are heavily taxed when these goods enter those counties, and CAFTA would reportedly end tariffs immediately on 80 percent of U.S. products sent to the region. Tariffs on the remaining 20 percent would be removed at a later time.

"We are fully supportive of it," said Hadden of the association's position. "We support it for many different reasons. But the main reason is we need to be able to help those countries support themselves and they can't do that under the current trade rules. We need to make sure that they have the ability to make their products down there and ship them here, and we, in turn, have the ability to make our products here and ship them there at very little cost for both sides."

Hadden said if that scenario does become reality, then some of the poorest nations in the northern hemisphere would be better able to conquer poverty.

"If that happens, then they can start pulling themselves out of poverty and develop a middle class, which is where we really want to get to with many of those countries," he said.

A study conducted by the World Bank reported CAFTA could reduce the number of poor people in Central America by 530,000 in just five years. Raising their living standards, of course, would make American goods more affordable for residents in the six countries.

Also, some analysts have said that CAFTA would direct some American firms to shift a number of jobs from China to Central America to be closer to home base. Hadden, though, doesn't think that will happen.

"You need to be by your customers. You can't afford the shipping costs to keep prices low. So you're always going to have to have a Southeast Asia market you need to be in. Whether you're going to be in China or Vietnam, you're going to be somewhere over there so you can get your product to those people as quickly and easily as possible," he said.

"The same is true for South and Central America, whether that ends up being in Brazil or Panama or Costa Rica, I don't know. But I think you're going to have that as time goes on, no matter what."    

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