Reposted from Crains Cleveland Business

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As economy improves, manufacturers want fair fight vs. China

Ginger Christ | December 17, 2012 | Crains Cleveland Business

Randy Solganik, owner of City Plating in Cleveland, wants a level playing field against China. Mr. Solganik, whose company puts zinc plating on steel parts used in the automotive industry, is one voice among many local manufacturers calling for China to revalue its currency.

“Definitely, Northeast Ohio would benefit from any type of move to help China revalue their currency,” he said. “Because of the manufacturing base that’s in Northeast Ohio … it’s a Northeast Ohio issue.”

China’s currency, which is known as the yuan or renminbi, is “significantly undervalued,” according to the U.S. Department of the Treasury’s Semi-Annual Report to Congress on International Economic and Exchange Rate Policies. The Nov. 27 report stated that “further appreciation of the RMB against the dollar and other major currencies is warranted,” yet to the chagrin of many manufacturers, it did not go as far as to label China a currency manipulator.

“I think we can compete on a level playing field, but the playing field right now is tilted,” Mr. Solganik said. “As a business person, you want to be able to compete against people. You don’t want governments stepping in supporting particular industries, especially to your detriment.”

While the valuation of China’s currency long has been a thorn in the side of manufacturers, the issue again is becoming prominent as companies look for ways to grow business post-recession.

“When the economy improves, you’re going to see more and more of a negative impact,” said William Gaskin, president of the Precision Metalforming Association, a trade association for metalworking companies in Independence.

Mr. Gaskin said prices of raw materials in the United States likely will rise as the global economy recovers. Yet he doubts the price of those same materials will appreciate in the same way in China.

“When you start talking about metal parts, metal should be priced pretty consistently around the world if it’s the same material,” Mr. Gaskin said.

Yet in the past, that hasn’t been the case.

Steve Schler, founder of ProMold-Gauer, a Tallmadge-based maker of molds and dies for the plastics and rubber industry, has been outbid by Chinese competitors dating back to 2002. He even lost a roughly $250,000 project, for which his company did the design and development, to a company in China that offered to build the project for less than ProMold’s material costs.

“If the Chinese are buying steel from the world market, we should be paying the same price,” Mr. Schler said.

Mr. Schler is encouraged by signs that the Chinese are raising their labor rates and increasing the value of their currency. In its Nov. 27 report, the U.S. Treasury said the renminbi since June 2010 has appreciated by 9.3% — or by 12.6% factoring in inflation.

“The trend is in the right direction right now, but there’s a long way to go,” Mr. Schler said. “So keeping the pressure on is definitely warranted. … They still have a huge advantage.”

Shared pain

Mr. Solganik of City Plating would like to see a greater trend toward reshoring, or bringing manufacturing located overseas back to the United States. He said it will happen if China doesn’t offer what he considers to be unfair advantages to manufacturers operating there.

Because Mr. Solganik’s business deals with heavy parts, its customer reach only extends to neighboring and nearby states due to the expense of shipping items. So, if its customers’ business disappears to China, City Plating feels the effects, too.

“We’re really dependent on local supply chain,” Mr. Solganik said. “So, if it’s cheaper to manufacture overseas, that directly affects the metal finishing business.”

He recalled one large customer for which City Plating provided tin plating services moved its entire manufacturing operation to China and consequently reduced its volume of business with City Plating by 98%. He would not identify the customer.

However, the reshoring Mr. Solganik wants to see isn’t a trend yet. Instead, it’s more of a “trickle,” according to John Colm, executive director of WIRE-Net, a Cleveland-based manufacturing advocacy group.

“It’s good news, believe me,” Mr. Colm said. “I think Cleveland is well positioned to benefit from the reshoring trend, but we have a long way to go.”

Applying the pressure

Mr. Colm said he thinks it’s up to manufacturers to continue to advocate for strong trade policies, including confronting China about its currency valuation.

“The currency issue is just one of a host of issues, but it is by far the most significant,” he said.

For that reason, the Precision Metalforming Association and the National Tooling and Machining Association, with which WIRE-Net works, on Nov. 29 issued a statement decrying the U.S. Treasury’s failure to cite China as a currency manipulator.

Labeling China a currency manipulator would lead to a lengthy investigation by the World Trade Organization, with a direct impact in the United States that wouldn’t be felt for potentially six years, Mr. Gaskin of the Precision Metalforming Association estimated. And that delay is why manufacturing associations are continuing to push the U.S. government to take a strong stand against China, so that when the U.S. economy recovers, manufacturers won’t be at a disadvantage, he said.

U.S. Sen. Sherrod Brown, D-Avon, agrees.

“While China flouts trade laws, the U.S. Treasury Department continues to give China a free pass when it comes to its currency manipulation,” Sen. Brown said in an email. “Meanwhile, American manufacturers are paying the price. Addressing China’s currency manipulation is critical to our economic recovery and for job gains.”