When Leo Gerard starts praising
Ronald Reagan, you know the world is changing.
Gerard, the United Steelworkers union
president best known for his tough support of workers' rights,
and Reagan, the darling of the Republican right, would normally
make unlikely bedfellows. But on one issue-the need to defend
the U.S. economy from the impact of an undervalued foreign
currency-Gerard seems to have more in common with Reagan than
with the current President.
It was Reagan who took action in 1985 to
depreciate the dollar vs. the Japanese yen-or, as Gerard put it
at a recent conference, "called (Japan) in and said it was
unacceptable" for them to continue to maintain the yen at an
artificially weak level, so boosting their exports and swelling
the U.S. current account deficit. The resulting deal, most
economists agree, helped pull the U.S. economy out of
Gerard, and many others in the steel and
manufacturing industries, would like to see Obama take a leaf
out of the Gipper's book. The villain now is China, not Japan,
and the problem is of a hugely different scale. Japan was
running a trade surplus with the U.S. of just over $50 billion
in 1985; last year alone, in a recession, the U.S. trade
deficit with China was more than $226 billion.
Domestic manufacturing groups have been
trying for some time to draw attention to the consequences of
this trade imbalance: the lost jobs, the industries that have
migrated to China. In recent months, as unemployment rose to
around 10 percent, the issue has gained ground in Congress,
notably with the revival of legislation that would put a tariff
on Chinese imports. In April, the Treasury Department will have
another opportunity to label China a "currency manipulator,"
which would indicate that Obama believes China's undervalued
currency is becoming a real problem.
Ironically, China's leaders might well
agree. Despite seemingly tougher rhetoric in China against what
top government officials there describe as "protectionist"
calls for a revaluation of the yuan, there is clearly a growing
realization that strengthening the currency would be one of the
most effective ways of slowing the country's economy, which
some fear is overheating.
China's exporters make up a sizeable chunk
of gross domestic product and undoubtedly have been lobbying
hard against a revaluation. But after pouring $1.4 trillion of
credit into the economy last year, Beijing is looking for a way
to apply the brakes; if there's one thing guaranteed to give
China's leaders worse nightmares than upsetting exporters, it's
the prospect of out-of-control inflation causing discontent
among its billion-plus population.
So Beijing may well be reaching a
conclusion similar to U.S. manufacturers: that a revaluation is
in its best interest. The chances of China making a one-off
appreciation of 25 to 40 percent, the amount some economists
say is justified, is zero, but a 5- to 10-percent rise looks
But whether turning up the heat on China is
the best way of guaranteeing that outcome is another matter.
China's leaders don't like to be pushed around in public, and
it can be argued that the more vocal the calls for change from
the United States, the less room it gives China's leaders to
maneuver. That school of thought may well appeal to Obama, who
by temperament and conviction appears to take a very different
approach to world affairs than, say, Reagan. "Currency
manipulator" doesn't quite have the ring of Reagan's famous
"Evil Empire," but don't be surprised if Obama backs off from
using even the less inflammatory of the two phrases.
An unspoken deal not to push China into a
corner in return for an appreciation of the yuan-albeit smaller
than many want-may be the likeliest outcome over the next few
months. Whether that will prove to be enough for U.S.
manufacturing and steel is doubtful, but that may be all that's