How are we going to create more jobs? How are we going to protect the jobs we have?

With California's unemployment at 12.5% in February, these questions are weighing heavy on the minds of lawmakers, union leaders, and workers alike. One part of this discussion that is often overlooked, at least until recently, is the increasing liberalization of the international trade and associated disadvantages for American workers, particularly with respect to China..

A new report by the Economic Policy Institute (EPI) has outlined our trade problems with China, the biggest trade cheater on the international scene to a stark reality. Between 2001 and 2007, the increasing U.S. trade deficit with China has cost Americans 2.3 million jobs.

This includes nearly 370,000 in California alone, a staggering 2.23% of the employment force. We need to fix the broken free trade system that allows countries like China to bend the rules to their own advantage.

A hot topic right now is China's artificially devalued currency and their efforts to boost the value of the dollar. Nearly every country in the world holds much of its cash reserves in U.S. Dollars which artificially stabilizes the high value of the dollar. China holds about 1.7 trillion U.S. Dollars, and uses a highly protectionist banking policy to keep the value of the renminbi (yuan) low.

This phenomenon makes Chinese exports much cheaper and attractive to foreign markets, while American products are more expensive. This advantage is equitable to a 40% subsidy from the Chinese government to its export sector which is one of the main reasons our trade deficit with China in 2009 was $226 billion, which was actually down from $268 billion in 2008, due to the increasing effects of the recession.

According to Nobel Prize winning economist Paul Krugman:

This is the most distortionary exchange-rate policy any major nation has ever followed. And it's a policy that seriously damages the rest of the world.

Fortunately, our lawmakers are starting to catch on, as Senators Schumer (D-NY) and Graham (R-SC) are pushing legislation designed to force China into allowing the renminbi to appreciate. The bill would allow duties to be placed on Chinese goods to offset the comparative advantage.

It's encouraging that legislators can find bi-partisan solutions to problems with the free trade system, but this is only the beginning. China also has miniscule wages and non-existent labor and environmental standards, which also need to be addressed, but they are not the only culprits.

While President Obama made many campaign promises to address the problems of our trade system, we've yet to see any indication he will do so. In fact, the Obama administration has entered negotiations for a Trans-Pacific Partnership trade agreement, which would include countries such as Vietnam and Brunei, gross violators of labor and human rights, that offer only small markets for our exports.

In this light, we must continue to press for the TRADE Act (H.R. 3012), which outlines a fair trade outlook based on job creation, product safety, consumer safety, a clean environment, and the promotion of development at home and abroad.

 

For more information, please contact Tim Robertson of the California Fair Trade Coalition.