Move Expected On Chinese Currency

t is becoming increasingly clear that China is willing to revalue its currency, but it
will likely happen gradually, and it will not be a major increase. Chinese government officials
have made it clear that it will be done in their own way and in their own time, and they will save
face at home and abroad by saying they are not reacting to outside pressure. In a recent meeting
with President Barack Obama, Chinese President Hu Jintao made that point, and Obama responded by
saying he understands the Chinese position. He added that he believes “a more market-oriented
currency approach would be in China’s and our own best interests, as it would help China reduce its
dependence on exports and encourage more domestic consumption.”

In recent weeks, there has been more talk along that line from Chinese government officials
and economists.

By linking the yuan to the dollar, China makes its exports cheaper and imports more
expensive, something U.S. manufacturers maintain is an illegal trade subsidy.

Although members of Congress continue to urge the Obama administration to brand China a
currency manipulator and take action under U.S. trade laws and impose sanctions, the administration
continues to call for a diplomatic approach, not only with China, but with other countries as well.
Treasury Secretary Timothy Geithner has said there are some high-level meetings coming up in the
next three months at which there will be opportunities to address the issue with policies “that
will help create a stronger, more sustainable and more balanced global economy.” Geithner said
China’s inflexible exchange rate has made it difficult for other emerging market economies to let
their currencies appreciate, and a move by China to a more market-oriented exchange rate will make
an essential contribution to global rebalancing.

However, during a recent visit to Beijing, Commerce Secretary Gary Locke said that even if
China permits its currency to float, the impact will not amount to much unless China removes some
of its trade barriers. “It’s like two steps forward and one step back,” Locke said. “They can
revalue their currency, but if they have market barriers or if they favor domestic companies, then
that revaluation of currency will not make much of a difference.” Federal Reserve Board Chairman
Ben Bernanke also indicated that the U.S. problems with China trade go beyond the currency issue.
While charging that the yuan is undervalued “to promote a more export economy,” Bernanke said that
moving the exchange rate alone would not have a major short-term effect but could have some impact
over time.

Sen. Lindsey Graham, R-S.C., who is sponsoring get-tough legislation on the currency issue,
told a recent meeting of textile executives that the currency issue has become a “defining moment”
in U.S.-Chinese relations and “we are going to press hard to get the administration to act.”
Graham’s bill would for the first time permit U.S. manufacturers to pursue anti-dumping cases based
on currency manipulation. Although there is considerable support in Congress to go the legislative
route, the pending bills are not very likely to be enacted into law in view of the administration’s
reluctance to go that route. The legislation does, however, serve to put pressure on both the
Chinese and U.S. governments to try to resolve the issue.

The next developments are likely to take place around the next U.S.-China Strategic Economic
Dialogue in Beijing and a meeting of the G-20 largest developed nations in Toronto in June.

Working With New Allies

As the U.S. textile and apparel industry has seen its employment fall from more than 1
million to 421,000 over the past decade, the once-powerful fiber/textile/apparel coalition has lost
some of its clout with Congress and various administrations. But that is in the process of being
turned around. Industry representatives in Washington are joining a wide array of coalitions and
business groups that share some common goals, particularly in the area of international trade, and,
as a result, their influence is increasing.

This past year, the National Council of Textile Organizations says it has worked with the
American Iron and Steel Institute, Fair Currency Coalition, Unite Here, AFL-CIO, National
Association of Manufacturers, and Citizens Trade Campaign as well as the traditional allied
organizations – the National Cotton Council, American Manufacturing Trade Action Coalition,
American Fiber Manufacturers Association and National Textile Association. Much of the work with
these organizations involved international trade issues, but the new alliances were helpful in
connection with the cap-and-trade environmental legislation and other issues in which the groups
have a common interest.

On top of this, textile lobbyists have been working with various congressional caucuses to
make direct appeals to members of Congress beyond those that have been reached traditionally
through the House Textile Caucus and an ad hoc Senate textile caucus. Contacts have been made with
the Blue Dog Coalition, which has more than 50 House members. This coalition was formed 15 years
ago by Southern Democrats, but since then, it has been expanded to include members of Congress from
25 states coast-to-coast. It has worked primarily on fiscal responsibility issues, but it now has
expanded its scope to focus on job creation, and that has meant becoming involved in international
trade issues. Textile lobbyists also are plugged into the House Trade Working Group, with 
more than 100 members who are sponsoring legislation calling for a major overhaul of U.S. trade
policy. Members of this group also have mounted an effort to pressure the Obama administration to
address the China currency issue.

All of this adds up to a much stronger voice for dealing with textile issues in Washington.

Some Legislation Expected This Year

Although Congress generally is reluctant to deal with international trade issues in an
election year, this year may be a different story because of the emphasis on the need to address
the nation’s economic woes and find ways to create jobs. Some bills are what have often been
described as “press release bills” that show members of Congress are working on issues of interest
to their constituents but that have little chance of enactment. Others, such as the currency
manipulation measures, are designed to put pressure on the Obama administration to act. There is a
pretty good likelihood Congress will enact legislation providing for more direct assistance and
trade liberalization with Haiti because of the urgency of the situation and the strong desire of
Congress and the administration to help that beleaguered nation.

Textile and apparel trade will be a major element in whatever Congress and the administration
come up with. Congress is likely soon to extend the duty suspensions on imports that do not compete
with U.S.-made products but are important components in a number of products, including textiles
and apparel. In connection with the reauthorization of Customs and Border Protection, there appears
to be an opportunity to incorporate some provisions, sought by U.S. textile manufacturers, that
would provide Customs with additional authority and resources to combat illegal imports.

May/June 2010