Competitive advantage and steel’s war plan to regain it

Aug 01, 2009 | 03:47 AM |

Former President Ronald Reagan once said that "to make the international trading system work, all must abide by the rules." He didn't say some must abide by the rules; nor did he say we should allow our trading partners to bend (or obliterate) the rules without consequences.

Today, it is more important than ever for this administration and Congress to get tough on fair trade—and the Currency Reform for Fair Trade Act of 2009 (CRFTA) is a critical step in this direction.

The American Iron and Steel Institute (AISI) joins other organizations in strong support for the CRFTA for several good reasons, but a major reason is that it addresses currency manipulation by foreign governments, which has contributed to serious global structural imbalances and provides a huge unfair—and artificial—competitive advantage.

While the United States plays by the rules and adheres to its World Trade Organization (WTO) obligations, some of our trading partners don't. Foreign countries engage in illegal currency misalignment when they effectively prevent market forces from determining the value of their currency. This practice allows those foreign countries to artificially make their exports cheaper and their imports more expensive, thereby putting American goods and services at an unfair competitive disadvantage.

China has been intervening massively in foreign exchange markets to keep its own currency severely undervalued (by at least 40 percent) for more than a decade. This essentially gives China a first-and-goal position on America's 10-yard line and has resulted in lowering America's annual gross domestic product by as much as $500 billion. Another result is a buildup of foreign currencies that can be used to acquire foreign assets with what amounts to "free money." This mercantilist policy not only subverts real free trade but also adds to the massive imbalances that threaten the global trading system.....





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