Tough Talk On China
Richard Blumenthal (D-CT)
Photo by Steve Kotchko

On Columbus Day, U.S. Sen. Richard Blumenthal (D-CT) toured HABCO, a Glastonbury firm that makes specialized testing equipment in a visit to highlight the economic challenge from China.

The firm’s president, Brian Montanari, said he doesn’t mind competition from Connecticut or elsewhere in America but he said “where it becomes unfair is when we compete against other countries, especially China, where they have a completely different cost structure, and where the government actually subsidizes a lot of the efforts, so sometimes they don’t even need to make money.”

Blumenthal, along with many other Democrats and Republicans in Congress, believes the U.S. must do more in pushing China to accept fair standards in how it deals with its own currency.

“The Chinese are eating our lunch in exports by undervaluing their currency, in effect subsidizing their exports, so that companies like HABCO that make defense and commercial parts are at a severe disadvantage.”

The Senator says legislation he supports, and that may be up for debate soon in the Senate, would “say to the (Obama administration) you must take appropriate measures, including tariffs, when the Chinese, or other countries misalign their currencies.”

A similar piece of legislation was approved by the House last year.  Blumenthal is hoping the Senate will produce something definitive soon on the issue.

“Our companies deserve a level playing field and I will fight for a fair shot for companies like HABCO as they compete with China not only in exporting to China, but in the exports China makes,” said Blumenthal.  “We are in a trade war with China, and we have to recognize that our companies deserve” attention from the Congress and the White House, Blumenthal said.   “The United States must take appropriate sanctions.”

Blumenthal concedes that while there is populist and bipartisan backing for the legislation there are also big risks in the global economy.  “There has been a fear that the Chinese would retaliate, but my view is that the Chinese cannot do worse than they are doing now (in harming American manufacturers), and they have to be fought in a world trade war,” he said.  “We need to defend our companies and products so that we can make it in America.”

The Senator displayed graphs that showed a steep rise in Chinese imports into the United States over a period of 20 years that showed only a weak rise in exports to China from America.  He claims that if the United States pushed China to revalue its currency to a proper level, $286 billion could be added to the U.S GDP (gross domestic product), and more than two million U.S. jobs would be created.  He also claims the federal deficit could be reduced by $857 billion.

Despite the tough talk from Blumenthal and others in Congress, it remains to be seen if the U.S. will actually take steps to counter China’s devaluation activities.  Threats of tariff action and other tactics against China have been in the Washington air for years, but economists, foreign relations experts, and even some U.S. manufacturers themselves worry such steps may be counterproductive.

What Blumenthal calls creating a “level playing field” smacks of protectionism to some analysts.  America and other nations are so dependent on China for new markets, debt financing, and other things that poking Chinese officials does seem dangerous to many in business and government.

The Obama administration, talking in diplomatic terms, said it hopes to engage top Chinese officials in discussions on a broad range of trade issues, not just alleged currency devaluation.  For now, it seems that if the world economy was a tennis court�"the scoring update would be:  advantage China.