ISRI ROUNDTABLES: Currency Affairs

An enormous and affordable labor force is usually considered China’s foremost asset when competing in the global economy. But a number of U.S. manufacturers have banded together to point to the nation’s non-floating currency as an unfair advantage for Chinese facilities competing against U.S.-based plants.

John Nolan, a vice president with Steel Dynamics Inc. (SDI), Fort Wayne, Ind., told attendees of the Institute of Scrap Recycling Industries Inc. (ISRI) Ferrous Roundtable, held Wednesday near Chicago, that U.S. manufacturers cannot compete on a fair basis as long as China’s renmibi (also known as the yuan) is allowed to stay pegged at one-eighth of the value of the U.S. dollar.

Nolan helps represent SDI and the Steel Manufacturers Association (SMA) on the China Currency Coalition (www.chinacurrencycoalition.org), a group of about three dozen trade associations and labor unions petitioning Congress and the Bush Administration to take action on the pegged Chinese currency value. The metals industry figures prominently in the coalition, which in addition to the SMA includes the Non-Ferrous Founders’ Society, the Metals Service Center Institute, the American Iron and Steel Institute, the United Steelworkers of America and the Precision Metalforming Association.

Nolan blasted the Clinton Administration for sleeping at the switch in 1994 when China devalued its currency and then introduced the peg. “Neither move was properly challenged by the Clinton Administration,” he remarked.

But the Bush Administration has also been largely silent on the issue, and the Administration rejected the coalition’s filing of a complaint under Section 301 of U.S. trade laws seeking action. “If there is any action, it has going to have to be driven through Congress,” Nolan commented.

Nolan’s message to the scrap recyclers in attendance was that large portions of both their scrap generating and scrap-consuming customers are suffering and in danger of disappearing because of the situation. “This is a huge crisis. Many economists believe this is a crisis just waiting for an opportunity to happen.”

Among the ailing segments cited by Nolan was the foundry industry, which has shrunk from 3,300 facilities to 2,400 since 1990, and which sees an average of 2 percent of its market slip away to China each year.

Without naming any corporations specifically, Nolan remarked that end product manufacturers and large retailers have been squeezing suppliers for the past couple of years to match the “China price,” which he says is usually not attainable for manufacturers with exclusively on-shore operations. (Other published reports have singled out Wal-Mart and the automakers as pushing this trend.)

Nolan said the only way a manufacturer can reduce costs by 50 percent (which is often needed to meet the “China price”) is to set up a manufacturing plant in that nation.

Citing history, Nolan said the last time the U.S. faced similar circumstances with a dollar that was too strong was in the early 1980s. He said the 1985 Plaza Accord, which brought the dollar down in value versus Western European currencies, was “followed by the longest economic expansion in peace-time,” as manufacturing jobs in the durable goods sector were restored.