To promote its exports, China has been cheating economically by keeping the value of its yuan artificially low. For years this has made Chinese goods relatively cheap in the United States and given Wal-Mart and other import retailers a huge sales boost.
Now that it's election time, Congress has gotten excited again about the resulting loss of perhaps millions of jobs in American manufacturing. Is this the point when the US finally plays hardball with China?
The Fair Currency Coalition, a lobbying group, hopes so. It wants Congress to pass legislation to force the White House to counteract the yuan misalignment. Its petition was signed by 41 trade associations, 14 labor union groups, and 218 firms.
Voters are mad at Washington for not standing up for American business and labor, says coalition spokesman Lloyd Wood. So why has President Obama (and Presidents Bush and Clinton before him) not been tougher with China?
After all, Treasury Secretary Timothy Geithner, in seven pages of testimony (in small type) before the Senate Banking Committee Sept. 16, talked largely about China's "unfair" practices against imports, foreign investments, intellectual property, etc. Yet he didn't promise to label China a currency manipulator, opening the way to "countervailing" duties against Chinese imports.
One reason is that the US business community has been divided, says Harald Malmgren, a veteran consulting economist. Midwest manufacturers want action. But big banks and multinational firms have been keen to do business in China.
With major budget deficits developing after the Bush tax cuts, the US also welcomed China's purchase of US Treasury bonds by the billions.
Today that calculus is changing. Japan is buying dollar investments to push down the value of the yen to boost its exports. Many other foreign investors see Treasury bonds as a relatively safe investment in a troubled economic world. Foreigners bought $78 billion net of US long-term securities in July alone.
Also, multinationals' interest in manufacturing in China is being tested as wages in China rise so fast that their exports are becoming less competitive in the US. Chinese unions are giving multinationals a hard time, and it's proving difficult to maintain quality-control standards. US companies resent China's tendency to steal their advanced technology, intellectual property, and research.
The equation is changing for China, too. Its exports plunged 24 percent last year (measured in dollar terms) when world trade suffered its worst year since World War II. Today, exports are growing more slowly than before the slump. And Europe is now China's biggest export market, so exports to the US have become less vital.
In a way, China's economic problems are as massive as those of the US as it tries to enlarge domestic demand for goods to replace foreign demand. Exports have accounted for 40 percent of China's total output of goods and services. A sizable shift toward domestic consumption could take years, says Mr. Malmgren. Chinese leaders, facing widespread citizen unrest at home, "don't know what to do.... They are in a tizzy."
To counter China's recent export slump, its government approved a $700 billion stimulus package and ordered its banks to make $1.2 trillion in loans (some of them junk). Such moves make the US stimulus look timid.
America's China problem, Malmgren suspects, is becoming passé. China's China problem, by contrast, may be just beginning.
• David R. Francis writes a weekly column.