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Mixed reactions to bill targeting China's money manipulation

October 06, 2010 - The U.S. House of Representatives vote last week to get tough with China in terms of its unfair trading practices was met with mixed reactions by some local manufacturers.

"It's a tiny step in the right direction," said Bob Warnke, owner and president of Warnke Tool (3287 Metamora Rd.) in Oxford Township.

"The penalty for us doing this could be large," said Bobby T. Cox, owner of Acorn Stamping (600 S. Glaspie St.) in Oxford Village, referring to the massive amount of U.S. debt owned by the Chinese government.

By a margin of 348-79, the U.S. House Sept. 29 passed the Ryan-Murphy currency devaluation bill, a piece of bipartisan legislation that allows the federal government to impose tariffs and duties on exports from countries that have held down the value of their currency for artificial trade gains.

Although the actual legislation doesn't expressly say so, the bill is specifically aimed at China.

Congressman Mike Rogers (R-Brighton), whose 8th district includes Oxford and Addison, voted in favor of the bill, which was based on a measure originally authored and introduced by him. "China has been cheating on the value of its currency and stealing American jobs," said Rogers in a press release. "China's currency is at least 25 percent below where it should be, making Chinese goods 25 percent cheaper than they should be."

The Economic Policy Institute, a nonpartisan think tank based in Washington D.C., found that Chinese currency manipulation eliminated 4,500 jobs in the 8th Congressional District alone.

The Alliance for American Manufacturing reports that Chinese currency manipulation cost the entire state of Michigan about 68,000 jobs.

"I think the Chinese have obviously recognized that if they can keep their currency advantage, they can get more of the commerce to flow in their direction, so that's what they're doing," Cox said. "For commerce to occur naturally and go where the lowest cost and best resources are, it's going to flow uniformly based on currency. If currency is subsidized or artificially manipulated, then that affects commerce."

Cox has two opinions on the House's vote.

Philosophically, he's opposed to it because he would rather see nations operate on an "equal footing" when it comes to trading and that means no currency manipulation or high tariffs, both of which interfere with the natural flow of commerce. He favors policies that promote free trade, not protectionism.

Realistically, Cox approves of what Congress did because "so much of our manufacturing is going overseas and it's doing that primarily because of the currency differences."

"If we lose all of our manufacturing and our manufacturing expertise in this country, we won't be able to support the standard of living that we've grown accustomed to," he said.

However, he fears what China might do in retaliation given the Asian nation owns $846.7 billion in U.S. Treasury Securities (the most of any foreign nation) as of July 2010. These securities are how the U.S. government finances its debt.

"The unfortunate thing is they (China) have a pretty big stick to whack us with," Cox said.

China could also retaliate against American businesses they deal with, he noted.

While Warnke approves of the House's action, he believes it doesn't deal with the main issue, which is that the cost of doing business in the U.S. is so high because of things like taxes and labor rates.

"There's no way for Americans to compete with Chinese or Indian or Japanese products because we have to pay American taxes and buy American food," he said. "Unless they (the government) impose large tariffs to compensate for the difference in the equity, it won't do very much."

Warnke knows first-hand what it's like to lose business to China. He used to produce a product that earned his company about $250,000 a year.

However, about 12 years ago, that same product started to be manufactured in China for much less than Warnke's price and "all of the sudden, it fell off like a lead balloon."

"We sold zero,," Warnke said. "We lost that business permanently because of the inequity."

Despite what's happened, Cox noted there are some positives on the horizon.

He's noticed that some of his customers who were previously trying to do everything offshore are now moving their business back to U.S. soil.

"I've seen a pretty large swing of the pendulum back the other way," he said. "They're trying to maintain more of that work here and looking at ways to improve productivity and lower costs as opposed to shipping offshore," he said.

The reason?

Cox explained that corporate purchasing personnel are beginning to look at the "real cost of doing business offshore, not just the stated cost."

He said a U.S. company can buy a tool from an overseas firm for $25,000 (versus $50,000 here), but then still have to pay tariffs, transportation costs and repair costs if the product doesn't work correctly.

"In some cases, this can be fairly substantial," Cox said.

CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.
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