US jobs: In China trade fight, does protectionism help, or hurt?
Congress is considering legislation that would punish China for devaluing its currency, a policy the Obama administration regards as hindering US jobs growth. But some say protectionism is even more costly.
Almost everyone in Rumford, Maine, (pop. 4,953) knows someone who works at the local paper mill, which employs about 800 workers. The town would be hard-pressed to survive without NewPage, which owns the mill and pays 55 percent of Rumford's property taxes. And, when the humidity is right, almost everyone's nose tells them NewPage is busy making paper – and money.Skip to next paragraph
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But this little town, where the factory is smack-dab in the middle of the business district, is also along the axis of a US-China trade dispute that in some ways illustrates the burgeoning national debate over the value of free trade versus the importance of jobs in places like Rumford.
Last year, just as the recession was biting into demand, NewPage and other coated-paper companies found Chinese and Indonesian manufacturers were grabbing market share by offering their products for less money. Before long, mills in Michigan and Wisconsin had to shut down and the people of Maine – with three mills affected by the new competition – wondered what would happen to them.
"If those mills had to close that would devastate those communities," says Rep. Mike Michaud (D), whose district includes two of the plants. Mr. Michaud and the rest of the Maine congressional delegation, Republicans and Democrats, all showed up at a hearing to determine if NewPage and the other companies had been harmed. The message from the Down East delegation, says Michaud: "We just want a level playing field."
The bipartisan support of Maine's paper industry illustrates a shift in attitudes toward trade with China that is taking place in Washington. Legislators from both sides of the aisle, frustrated by years of conversations with China over the deep imbalance in trade activity between the two countries, and concerned over plant closings in their districts, are beginning to take action.
"In the US there is a combustible mix of midterm elections, a rising trade deficit, and the weak jobs picture," says Eswar Prasad, a professor of trade policy at Cornell University in Ithaca, N.Y., and a former head of the International Monetary Fund's China division.
On Sept. 29, the House, in a bipartisan vote, passed legislation aimed at China's management of its currency, the yuan. For years, as the Chinese exported goods to the United States, they were paid in dollars, which they have invested in US Treasury bills. But rather than let the market decide the yuan's value, the Chinese kept it at a level that US administrations have deemed artificially low. This helps Chinese exports remain competitive and makes US goods in China more expensive.
If the Senate passes similar legislation – and President Obama signs it – the Commerce Department could view currency manipulation as a trade subsidy. That would allow the US to impose additional tariffs on goods from countries manipulating their currency. It's unclear, however, if the legislation would pass muster with the World Trade Organization (WTO), the global referee for trade disputes.