The AISI testimony stresses that China's currency, (the "RMB"), which has been pegged to the US dollar for more than 16 years due to massive Chinese government intervention in foreign exchange markets, is today undervalued by as much as 50 percent. The testimony calls this severe currency undervaluation: "the single largest subsidy" to Chinese manufacturers; "the key" to China's export-led growth strategy; and "a major cause" of the global structural imbalances that contributed significantly to the world financial meltdown and to the Great Recession of 2008-2009.
In examining the effects of China's "currency mercantilism" in the case of steel, the testimony states that, because of the "currency subsidy" and many other forms of Chinese unfair trade practices: (1) between 2000 and 2009, China's steel production jumped from 15 percent to 47 percent of world steel production; between 2002 and 2008, China went from being 3 percent to19 percent of total US finished steel imports; between 2003 and 2008; US steel imports from China rose from only 600,000 tons a year to nearly 5 million tons a year; during these same years, the US steel trade balance with China went from being a slight surplus for the United States to China accounting for 25 percent of the total US trade deficit in finished steel mill products; and, in the process, "America's steel companies, employees and communities all suffered significant and long-lasting injury."
In examining the effects of China's currency mercantilism in the case of steel-intensive manufacturing industries, the testimony states that, because of the same types of artificial government assists provided to steel-related industries in China (including the huge currency subsidy): between 2001 and 2008, the US experienced nearly $1.5 trillion in cumulative manufacturing trade deficits with China and the US lost 2.4 million manufacturing jobs due to Chinese trade; between 2000 and 2009, China went from being 22 percent to 52 percent of the total US manufacturing trade deficit; between 2004 and 2008, the US indirect steel trade deficit with China (with the US manufacturing trade deficit expressed in tons of steel) grew from 3.7 to 5.9 million tons; during this period, China went from being 24 percent to 46 percent of the total US indirect steel trade deficit; and, even in the Great Recession year of 2009, China's share of this deficit increased again, to 53 percent.
According to the testimony, China is currently shipping approximately six million tons of steel a year to the Unites States in the form of steel-intensive manufactured goods such as automotive, machinery, construction and appliance products. This is roughly three times the amount of China's direct steel exports to the US.
The testimony makes clear that the AISI strongly supports President Obama's National Export Initiative (NEI) with its goal of doubling US exports over the next five years. However, it also points out that this goal will never be achieved "unless US policymakers address China's currency manipulation" and enforce trade rules and agreements. In commenting on the recent announcement by Treasury Secretary Geithner that the United States will delay its semi-annual report on currency to allow multilateral diplomacy more time to work with the government of China, the AISI says that this "should lead the Congress to expedite its enactment of an effective US trade law remedy provision to address fundamental currency misalignment ... [because] we need US trade remedy tools now to defend ourselves against currency manipulation and the domestic job losses it causes."