DeMint, Graham at odds

Alexander V. Ragir, Washington Correspondent

WASHINGTON -- Trade policy might be the most important issue for South Carolina's beleaguered textile industry, and Lindsey Graham and Jim DeMint are headed for a duel over the best way to fight Chinese competition.

While the two Republican senators usually agree on key policy issues, the only thing they agree on about trade policy is the problem: China's artificially low currency cheapens its exports and gives it an unfair advantage against U.S. companies.

While Graham threatens aggressive tariffs, DeMint calls for firm negotiations combined with market pressures.

DeMint vehemently opposes the legislation Graham introduced, and may bring up to vote next month, to impose a 27.5 percent tariff on all Chinese imports. The junior senator is writing his own China trade bill, which he said would work as a "constructive part" of

global trade rules, without a tariff.

With a record $726 billion U.S. trade deficit last year, $202 billion with China alone, this issue is a prime concern for economists and local business leaders.

Graham's view

To protect jobs, even the competition and persuade China to stop "manipulating" its currency, Graham is pushing heavy tariffs on all Chinese imports.

Graham co-sponsored legislation last year with Sen. Charles Schumer, D-N.Y., that would impose a 27.5 percent duty on Chinese goods unless the country revalues its currency. Proponents of the legislation estimate the value of the Chinese Yuan at 15 to 40 percent its going rate of 8.04 to $1.

"It's pretty simple -- China cheats," said Graham. "They artificially peg their currency below its true value making their goods cheaper."

The bill would allow the president to implement the tariff if China is not "significantly" progressing in revaluing its currency until it is "at or near its market value." If the president decides that China is moving forward, no tariff would be enacted.

South Carolina lost 85,000 manufacturing jobs in the past decade, according to the Burea•of Labor Statistics, and its 7 percent unemployment rate is the second highest in the country.

A prime reason the U.S. is losing textile business is because it is competing with "artificially discounted" imports from China, said Robert E. Scott, an economist who focuses on the lives of workers.

The Chinese government cheapens its currency, essentially, by propping up the demand for the dollar by buying more than $200 billion in U.S. investments like treasury bonds, said Scott, from the progressive Economic Policy Institute. This lowers the value of the Yuan and also allows the U.S. to continue growing its federal deficit, he said.

"But eventually yo•run out of credit," he said. By gradually engineering the price of the dollar down with a tariff like Graham proposed or pressuring China to "float," or revalue, its currency -- the U.S. could prevent a market-devastating crash of the dollar, Scott said.

Devaluing the dollar would also make U.S. exports seem cheaper, he said.

Graham is also pushing a bill to strip China of the "permanent normal trading" status given in 2000 because he said it is "marching backward on every front."

"They continue to violate normal business practices by manipulating their currency," he said. "They do not respect intellectual property to the detriment of the entrepreneurs of the world."

A number of proponents of Graham's aggressive approach to China contend that his bills are not likely to become law but can be useful threats in negotiations with China to move toward a flexible currency.

But Roger Milliken, the CEO of textile giant Milliken & Co., said drastic measures are needed to preserve a high standard of living for Americans as a whole.

He said Graham's proposal would provide a needed boost to America's manufacturing workers who have suffered from the U.S. government's "doctrinaire and almost religious commitment to free trade."

The tariff should be at 50 percent because that is the effect of China's devaluation of its currency, he said.

Milliken said the U.S. should enact an even larger tariff than Graham proposes to "fully represent the actual situation."

Talking about how free trade with countries like China affects working Americans, Milliken said, "We forgot that the middle class is essential to the stability of our country. We just opened our kimonos and let everyone come in."

DeMint's plan

China is moving toward a floating currency and a tariff would close markets, break international trade laws and cause prices in the U.S. to skyrocket, according to DeMint.

DeMint is writing legislation, along with key members of the Senate Finance Committee whom he would not name, in an attempt to push China to revalue its currency without a tariff. Instead, it calls for negotiations with the Chinese treasury department, a push for less Chinese government subsidies and help for small and medium-sized companies to sue Chinese businesses for copyright violations.

"We can't protect our way to prosperity," he said, noting that Graham's proposed tariff would be illegal as a member of the World Trade Organization. "The only way to succeed is to make sure this is the best place in the world to do business."

Businesses benefit from having the opportunity to buy the cheapest products and Americans' checkbooks go further with cheap Chinese imports, which have alone lowered clothing and electronic prices by 15 percent, he said.

DeMint said exports supply one in every four jobs in South Carolina and are the biggest economic growth opportunity for the state. Last year exports in South Carolina jumped 4.25 percent from the previous year to a record $13.9 billion, according to the state commerce department.

In the same year, exports to China rose 29 percent. "We're opening up their market," DeMint said of China. "I worked hard to put China into the WTO rule-based system."

For exporters like Spartanburg-based Tandematic Inc., any move to increase tariffs is "a step in the wrong direction," said Bill Young, the president of the small textile machinery manufacturer. Exporting 65 percent of its products, Tandematic's sales to 20 foreign markets are the reason it survived last decade's textile downturn, Young said.

Young's main concern is not international competition, but rather expensive patent and lawyer fees that prevent him from suing foreign companies for copying machinery Tandematic invented.

"Competition just keeps us on our toes," said Young. "But we'd rather not be kept on our toes with our own products."

DeMint said his bill would create an advanced system to help businesses with copyright cases and help them export to China. The junior senator called it a "constructive part of the process," instead of singling out China when India and Russia are also prominent emerging competitors.

DeMint said the trade deficit is skewed by higher foreign oil prices and, despite the scary ring to it, only means Americans import more than they export.

"It doesn't mean we owe anything," he said "It means I buy more at the grocery store from them than they buy from me and that's not necessarily bad."

Americans' paychecks go further buying from the most efficient global supplier, he said, emphasizing that these products save U.S. consumers billions of dollars a year.

South Carolina's open market and competitiveness also attract investment, DeMint said.

According to the Organization of International Investment, South Carolina ranks first in the share of jobs at U.S. subsidiaries of foreign companies. Direct foreign investment adds about 127,500 jobs, or one in every 12 workers for private companies, according to the organization.

Any tariff on China would just slow down the new opportunities for U.S. businesses, said Daniel T. Griswold, a trade policy expert at the Cato Institute, a libertarian think tank.

U.S. businesses already benefited from China's 2.1 percent revaluation of its currency, he said, citing a 50 percent increase in the volume of manufacturing output since the revaluation in July, Griswold said.