Cheap Chinese vs the pricey US option

WASHINGTON: For Kurt Runge and millions of other Americans, it’s not easy to shop for everyday goods without adding to the ballooning US trade gap with China. Examining a $12.99 Chinese-made garden spade at a local Home Depot store on Saturday, Runge said price is often the determining factor in his purchase decisions.

“I try to buy American but I have a tight budget and sometimes I just buy the cheapest thing available,” said the 25-year-old graduate student. In the power tools section, even iconic US brands such as DeWalt and Ridgid offer Chinese-made models or components.

As high-level US and Chinese officials launched thorny discussions over stubborn trade imbalances on Tuesday, one thing was clear: the rising tide of cheap Chinese goods in America is pervasive and it costs US manufacturing jobs — but it saves consumers money.

“China in many ways is helping to insulate this country from inflation,” said Peter Schiff, president of Euro Pacific Capital Inc., a brokerage in Darien, Connecticut.

“We’ve effectively exported our inflation by taking the money that the Fed creates and exchanging it for low-priced consumer goods. The Chinese then recycle that money back into US assets which keeps our interest rates artificially low.”

That cycle helped swell the US trade deficit with China to a record $233 billion in 2006. In the first three months of this year, the United States has logged a shortfall of $57 billion, more than 20% above the year-ago level.

Dallas Federal Reserve Bank President Richard Fisher said last year that globalisation, namely competition from China and India, had “rewired the lights and switches on policy-makers’ control panels.”

A recent Deutsche Bank analysis estimates that Asian production has shaved a couple tenths of a percentage point off core US inflation. In March, consumer prices for items other than food and energy, as measured by the Fed’s favored inflation gauge, stood 2.1 per cent above the year-ago level.

US lawmakers argue an artificially low value for China’s yuan currency — which some economists believe is undervalued by as much as 40% — puts American manufacturers at a competitive disadvantage and costs jobs.

If there is no concrete action to address the imbalances, some members of Congress are poised to push legislation to make it easier for the US commerce department to impose tariffs aimed at offsetting Chinese subsidies or to define currency manipulation as a subsidy under US trade law. In the US midwest manufacturing heartland, where job losses attributed to Chinese imports have hit hard, many businesses “feel like they’re up against a tough and unfairly strong competitor,” said Richard DeKaser, chief economist at National City Corp in Cleveland.

Chinese firms face lower labor costs and less-stringent regulation, as well, DeKaser said. Many US companies are adapting by shifting some production to China, renegotiating labour contracts or merging with stronger companies.