By Carl Weiser
Enquirer Washington Bureau

JOBS OFF, EXPORTS UP

Manufacturing jobs are disappearing, which some companies blame on China's trade practices. Ohio September 2002: 880,600 September 2003: 846,700 Change: Down 3.8 percent Kentucky September 2002: 272,700 September 2003: 269,300 Change: Down 1.2 percent Indiana September 2002: 590,500 September 2003: 572,100 Change: Down 3.1 percent Yet exports to China are rising. Ohio 1999: $244.8 million 2002: $510.7 million Change: Up 109 percent Kentucky 1999: $63.6 million 2002: $129.2 million Change: Up 102 percent Indiana 1999: $135 million 2002: $187.1 million Change: Up 39 percent Sources: Northeast Midwest Institute, Bureau of Labor Statistics

WASHINGTON - Jeb Head, president of 186-year-old Covington, Ky., manufacturer Atkins & Pearce, proudly notes that his company has survived the Civil War, two World Wars, the Depression, recessions and stagflation.

"Now we face a threat that may exceed all that we have seen," he told a House committee last month.

The threat? China, he said. And more specifically, what some Tristate manufacturers see as China's most unfair trade practice: propping up its currency, the yuan.

That makes Chinese-made goods seem less expensive than they really are, and U.S.-made goods more expensive - by somewhere between 15 percent and 40 percent.

For many local companies and the people who work for them, the most important country in the world right now isn't Iraq or Afghanistan, but China. Tristate politicians are stumbling over themselves on behalf of local manufacturers in their fight against China.

In an unlikely alliance, conservative Kentucky GOP Sen. Jim Bunning joined liberal New York Democrat Chuck Schumer in proposing to slap Chinese goods with a 27.5 percent tariff.

The entire Tristate House delegation supported a nonbinding resolution demanding China end its currency manipulation.

Ohio's two senators, Republicans George Voinovich and Mike DeWine, last month called on the Bush administration to investigate whether China is manipulating its currency. Voinovich, who is up for re-election, already had introduced a bill that would require the Bush administration to investigate. It's called the Currency Harmonization Initiative through Neutralizing Action act, the CHINA act. Voinovich earlier brought Bush Commerce Secretary Don Evans to hear directly from Ohio manufacturers angry about China.

"They're playing us the fool, abusing our good will. And it is costing Americans their jobs," Voinovich said.

Rep. Rob Portman, the Cincinnati Republican who invited Head to the hearing, said he hears complaints from companies in his district that China's currency policies are hurting them and threatening local jobs.

"Those jobs, in my view, will be difficult if not impossible to replace," he said. They're generally high paying, with good benefits."

Consumers benefit

In international trade disputes, the question of what's free trade or fair trade - and what's hype or industry whining - is sometimes hard to discern. A number of economists and companies say that whatever China is doing is actually good for the U.S. economy and its consumers.

"It depends on where you're standing," said George Vredeveld, president of University of Cincinnati's Economics Center for Education & Research. For the small manufacturers that still propel a part of Cincinnati's economy, what amounts to massive Chinese subsidies hurts them more and more, as those companies' customers continue to move their plants to China.

But factories here that buy Chinese-made parts to assemble save money. And ultimately, so do consumers.

"Most of us, when we go to Wal-Mart, see all the products that are bought in China," said Raj Mehta, a University of Cincinnati marketing professor. "If you put a 27 percent tariff on all the products, that means we pay that much more for goods and services. I don't think that's the way our government should work."

In fact, statistics show China is a booming market for Tristate goods, according to the International Trade Administration.

Exports from both Ohio and Kentucky to China more than doubled from 1999 to 2002.

The largest component was companies making machines for Chinese factories.

China is now Ohio's seventh-largest export market, up from 13th in 1999.

Just this month, China signed a $3 billion deal with GE Aircraft Engines. The Evendale company will provide engines for China's regional airline.

Some economists say China isn't the problem. Manufacturing jobs are disappearing because fewer workers are needed to make the same goods, thanks to computers and robots.

"In plain English, with new technologies the U.S. is producing more with less labor - an indication of economic health, not economic sickness," Marc Miles and Ana Isabel Eiras, both with the conservative Heritage Foundation, wrote in a report.

Local manufacturers hurting

That kind of talk gets Head sputtering with rage. While he's been able to avoid layoffs, he's had to cut about 23 jobs via attrition, about 10 percent of his staff, almost entirely because of China, he said. His company makes candle wicks, insulation for wires, specialized yarns and braids.

"The people saying 'This is not a serious problem' are dead wrong. In the future, people will look back on this period, and it will be a lot more obvious than it is now," Head said.

Manufacturers are deserting the United States, he said. Manufacturing jobs, which were actually rising in the mid-1990s, have been disappearing - more than 2 million since 1998, according to the Bureau of Labor Statistics.

From March 2001 to March 2003, Ohio lost 118,500 manufacturing jobs, more than any state except California and Texas, according to Policy Matters Ohio, a Cleveland-based nonprofit research group.

If nothing changes, the U.S. economy will be a disaster, Head said.

"We're selling out a very important part of our economy. ... We're really eating away at the muscle of American manufacturing," he said.

Cincinnati Machine vice president Chip Storie told a different House committee that the loss of manufacturers threatens the nation's defense, as Pentagon contractors and their suppliers become increasingly dependent on foreign factories and technology.

His company makes machine tools, which cut and shape metal to make parts for everything from pumps to airplanes. China has become the leading consumer of machine tools in the world, he said.

"The machine tool industry in the United States today is in a crisis," he told the House Small Business Committee in July. As manufacturing plants have drifted to China, consumption of machine tools in the U.S. has dropped 60 percent in five years.

Even Portman, a free trader, said the Chinese currency policy is doing more harm than good to the United States. The loss of manufacturing jobs outweighs the benefits of cheaper consumer goods.

For Cincinnati's largest private employer, Procter & Gamble, the China issue is less important. While it sells shampoos, laundry detergents, and other P&G products there, almost all of them are made in China.

"We're relatively unaffected by this issue," P&G spokesman Terry Loftus said.

Exchange rate stable

The Chinese have set the value of the yuan, also known as the renminbi, at about 12 cents, keeping it there for about a decade. During the same time, the Chinese economy has undergone a revolution, modernizing and booming. If market forces set the yuan's value, it would be worth much more than it is now. Chinese goods would be more expensive. Chinese workers would have to be paid more.

The Chinese government said the yuan's value does fluctuate a little. But U.S. critics argue the variation isn't wide enough.

Sun Weide, spokesman for the Chinese Embassy in Washington, said his country's monetary policy is required to sustain the pace of economic growth and make a transition from a fully controlled economy to a market-based one.

The products China exports - toys, clothes and shoes, for instance - are labor-intensive and are produced in small numbers in the United States, he said. More than half the Chinese products coming to the United States are made by foreign companies, mostly American, that have set up shop there.

The United States has been slowly increasing its exports to China, but imports from the Asian nation have been exploding. According to the Commerce Department, U.S. exports to China rose from $8.7 billion in 1993 to $22 billion last year. In contrast, imports went from $31.5 billion to $125 billion during the same time. And the trade deficit, the difference between the value of goods U.S. consumers bought and this country's exports to China, ballooned to more than $100 billion.

If any factor might push the federal government to take action on China's currency, it's the 2004 elections, experts say. Many of the states most affected from the lost manufacturing jobs are swing states such as Ohio, Pennsylvania and Wisconsin. Skeptical analysts say lawmakers are bashing China to secure votes during next year's congressional and presidential elections.

"It's more political than economic," said Lanxin Xiang, a Chinese native who teaches in Switzerland and is now a visiting foreign policy expert at the Library of Congress. "They want to blame somebody. ... At this particular moment, it is politically impossible for China to accept any idea of floating the currency."

Portman said smacking Chinese goods with tariffs would just start a trade war. Instead, the United States should prod the Chinese through diplomacy and economic pressure to nudge their yuan.

"We're making some progress. We've never even asked before," he said. "Let's see what happens."

E-mail cweiser@gns.gannett.com Contributing was Gannett News Service reporter Raju Chebium.