Mendoza School of Business

Local firm takes offensive in trade battle with China

Published: May 4, 2005 / Author: Ted Star

Not long after Standard Die Supply of Indianapolis lost a flood of business to rival shops in China three years ago, Fred Wolford laid off almost half his employees. Then he started to fight back.

He spent $800,000 for upgraded machinery, hired a new sales team and sent out letters that urged Congress to restrict the torrent of imports from China.

On Tuesday, Sen. Evan Bayh, D-Ind., dropped in to let Wolford and the 47 employees left in the Near-Southside shop know the message had gotten through.

“We have to start thinking about what is our place in the global economy,” Bayh told workers and reporters on the main floor of the 60,000-square-foot plant.

Job losses in the industrial Midwest seldom have been at the forefront of political discussion in Washington. But the $150 billion annual trade deficit the U.S. runs up with China suddenly has become a hot issue. “At least the days of turning a blind eye and pretending it’s not there are over,” Bayh said.

Among the actions proposed:

• Bayh has offered the Stopping Overseas Subsidies Act. It would change U.S. trade law, making challenges against improper subsidies easier.

• Rep. Duncan Hunter, R-Calif., has sponsored a currency manipulation bill aimed at Chinese imports.

• Sen. Charles Schumer, D-N.Y., has proposed the Chinese Currency Act of 2005. It calls for a 27.5 percent tax on all Chinese imports into the United States unless China adjusts its currency by October.

• Robert Portman, the Bush administration’s new U.S. trade representative, vowed a level playing field for American workers, a reference to stopping unfair Chinese trade practices.

Wolford expressed optimism Tuesday. At last, he said, Washington has begun to sense small manufacturers are struggling. “I have written letters and asked the government for help,” Wolford, president of the 59-year-old company, told employees as he introduced the senator. “Sen. Bayh was the only one who has responded.”

Bayh toured the plant and told workers his anti-subsidies act could help. Although he didn’t single out China in his remarks, Bayh said, “I believe in trade. It shouldn’t be premeditated cheating.”

Bayh is scheduled to visit plants in Evansville, Jeffersonville and Kendallville in the next few days to speak on the same theme.

“He seems to speak genuinely, from the heart. Whether anything can happen remains to be seen,” said David Mangas of Fishers, a programmer on a computerized cutting machine Standard bought three years ago. “I think it’s a tossup.”

Many economists say any change, if it occurs, will be slow. “No one can change the world economy overnight,” said Jeffrey Bergstrand, finance professor at the University of Notre Dame.

The issue centers on China’s policy-making Bank of China. It keeps China’s currency, the yuan, valued at about 8.25 yuan to the U.S. dollar. The bank has maintained this level for two decades by amassing dollars and U.S. Treasury bills. In recent years, though, the dollar’s value abroad has slumped, pressed down in part by the U.S. trade deficit.

Even though China’s economic boom should be lifting the yuan’s value, the Bank of China maintains the 8.25-to-dollar valuation. This makes Chinese goods unusually inexpensive in U.S. stores.

The wholesale price of jeans, T-shirts and other apparel imported from China fell 50 percent from 2001 to 2004, leading to charges of unfair trade subsidies and currency manipulation.

When groups such as the Indiana Cast Metal Association warned in 2003 that one-third of its members had closed, many manufacturers pointed to the yuan-dollar relationship as a sign of currency manipulation.

And as 100,000 Indiana industrial jobs vanished from 2000 to 2004, the trade group Precision Metalforming Association made yuan devaluation its No. 1 lobbying issue.

Many Europeans have written off the U.S. complaints as China-bashing by a soft country unable to compete. “Is Congress turning protectionist?” asked The Economist, a British newspaper, in April.

And many in China have contended the currency manipulation charges actually are intended as U.S. leverage. Washington wants Beijing to ease up on its effort to exert control over neighboring Taiwan, a longtime U.S. Cold War ally.

But on the floor at Standard, Wolford stops beside an 8,000-pound slab of hot-rolled metal made in a Delaware mill.

His employees have bored an array of holes of various diameters across the face of the slab with a precision that only a few years ago would have been beyond Standard’s ability. The piece, a progressive die, is being prepared for the installation of cutting tools. “We were losing money, and our sales were down. Now the company is going through a transition,” Wolford said, referring to the $800,000 in upgraded machinery that enables it to tackle projects, such as the 8,000-pound slab.

Chinese shops provide free tooling on top of low labor made available in large part, he insists, by unfair trade subsidies that could yet undermine Standard.

“If we can level the playing field, I can compete with them,” Wolford said. “What I can’t compete with is unfair trade.”


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