Chinese Import Prices Keep Falling -- and Keep Pressing Domestic Manufacturing

Those claims keep multiplying that surging production prices are seriously eroding Chinese manufacturing’s competitiveness to American industry’s advantage. But the February import price figures released this morning by the Labor Department continue the flood of data (e.g., record U.S. trade deficits with China) sending exactly the opposite message.

Chinese import prices not only keep faring better over time than prices of manufactures imports from the world as a whole. They keep maintaining this competitive edge even though the yuan has appreciated versus the dollar while the dollar recently has appreciated against most major currencies.

These import price and exchange rate trends show that the major reindustrialization urgently needed to achieve President Obama’s vital goal of a U.S. economy “built to last” cannot take place unless Washington takes much stronger actions against China’s illegal subsidies and other predatory trade practices.

Prices of Chinese products (overwhelmingly manufactures) entering the U.S. market rose in February for the first time in a year – by just under 0.10 percent. But the prices of manufactures imports overall rose faster – by 0.17 percent.

Year on year, the prices of Chinese imports have fallen by 0.09 percent. But the prices of global manufactures imports total have fallen by 0.08 percent.

Indeed, Chinese import prices have fallen on net since October, 2011 – by 0.04 percent. The prices of all manufactures imports have fallen slightly more slowly during this period – by 0.03 percent, even though the media has been filled with reports that soaring wages and transportation costs, along with a strengthening yuan, were steadily pricing Chinese-made products out of U.S. and global markets.

Even more striking, Chinese import prices have improved versus their U.S. and foreign competition despite exchange rate shifts that should be yielding diametrically opposed results.

On a monthly basis, between January and February, the dollar fell against China’s yuan by 0.04 percent, but rose against the broadest measure of foreign currencies by 1.59 percent. Yet as shown above, during this month, prices of Chinese imports decreased more than prices of U.S. manufactures imports as a whole.

On a year-on-year (February) basis, the dollar fell 1.23 percent against the yuan, but rose 1.71 percent against the broad index. But as shown above, the prices of Chinese imports again decreased more than the prices of manufactures imports as a whole.

And since China re-loosened the yuan-dollar peg, in June, 2010, through this February, its currency has appreciated by 8.87 percent versus the dollar, while the broad dollar index rose by 4.85 percent versus the greenback.

Yet although these exchange rate shifts should have eroded China’s price competitiveness, the opposite occurred. The prices of Chinese imports did rise – by 3.98 percent. But the prices of manufactures imports as a whole rose much more – by 6.32 percent.

Part of China’s performance stems from improved productivity – which in China, as elsewhere, enables producers to absorb rising prices of any inputs without passing them on to customers. Yet China’s continuing competitiveness also reflects ongoing currency manipulation – which both President Obama and the House leadership refuse to address adequately – as well as a raft of other Chinese manufacturing and exports subsidies that Washington has ignored or neglected as well.

Unless U.S. leaders take forceful steps to offset,China’s pervasive market rigging, contentions that the PRC is becoming a manufacturing has-been will remain delusions. More important, a towering barrier to a U.S. manufacturing revival will remain firmly in place.