Sen. Charles Schumer is taking on China
Written by Michael Vass
Sen. Schumer is seeking to enact legislation, the Currency Exchange Rate Oversight Reform Act of 2010, that will force the Treasury to cite China for manipulating their currency, which he believes is a factor in the loss of hundreds of thousands of jobs in New York State and specifically the Southern Tier. This legislation could impose tariffs to countries that manipulate their currency, and prevent them from winning U.S. Government contracts.
It is a topic of no small debate. In the past decade some 300,000 in New York alone (5.3 million in the nation) manufacturing jobs have been lost, mostly to China, due to their cheaper costs which Sen. Schumer believes is tied to manipulation of their currency.
This sounds great, but is it accurate? Is this in the best interest of New York and the nation, or a positive spin on an issue that conveniently distracts from his support of the Health Care Reform and the potential consequences on his re-election bid in November?
Consider this. In China, the products created are often a B-class compared to good made in the U.S. This is due in part to lower quality raw resources, and less adept workers. At the same time, the cost of producing almost anything in China does not include healthcare, retirement funds, unions, and a host of taxes.
In the U.S., especially New York State, there are additional costs. While the item will often be an A-class product, it will have its price include: union pay scales, EPA and/or FDA restrictions and requirements, health care costs, some of the highest business taxes in the world, property taxes, cost of living increases, and of course the wages of American workers which far exceed that of workers in China.
Effectively this breaks down to an overly simplified example: Assuming that China does not manipulate its currency
Raw resource cost is fixed at say $3 for both China and the U.S.
The production cost in China is half that of America (just workers salary) - so $3 China and $6 U.S.
Add to this the cost for taxes, federal mandates, healthcare, and all other expenses not involved in production (U.S. only) - $6
Given even a good economy, a product can be bought from China for half the cost and still provide the same use. Which item will sell more? Basic economics says the cheaper item.
This is not a perfect example. The root of the example is accurate though. Even with all other factors equal the cost to make anything in America is more expensive than in China, currency manipulation or not. Thus even if the Bill is passed into law, it will not replace the hundreds of thousands of jobs lost to China, Mexico, India and everywhere else that does not have the added factors of high taxes, government restrictions, and massive regulation.
Thus the Bill that Sen. Schumer is presenting is more akin to a smoke screen than effective law. It sounds impressive and implies a benefit, but the benefit is impossible to achieve as the real world factors prevent the equal footing he hopes to establish.
It would be great to say that this is a purely constituent based motivation on Sen. Schumer’s part. He has tried to pass similar legislation before, at least 2 years ago. But the timing of this legislation seems odd considering that it comes a year after the Obama Stimulus has failed on all its primary goals. It comes after a publicly distasteful Health Care Reform debate and partisan passage. It arrives just in time to be fully used to advantage in his re-election bid.
Perhaps the answer comes when we go back to the example. If all things outside of the cost to make a product are the same, will the cost of American goods ever be lower than that of China, Mexico, India and other countries around the world? The answer is no, under the current fiscal outlook of America and New York State. Therefore any claims to return jobs is empty at worst, and minimal at best.
Therefore it seems that the Currency Exchange Rate Oversight Reform Act of 2010 is less a benefit to constituents and more of a political benefit to a Senator seeking re-election. But I am open to hear from Senator Schumer to explain how my theory is incorrect.
