8.28=1

  The muffled sound you just heard came from thousands of magazine pages being turned nationwide. I can’t say I blame anyone, either.
  That equation-as-headline, however, refers to an exchange rate that’s important in the U.S. stone industry today, and helps to fuel the demand for granite countertops, slate flooring and every other bit of material scheduled for fabrication and installation. And, if politicians in Washington finally get their way, the number to the left will change – and your business could be affected on the bottom line.
  8.28=1 is the exchange rate for the Chinese yuan (or renminbi) against the U.S. dollar. If you don’t follow foreign currencies, don’t feel left out when it comes to China’s; that exchange formula is rock-solid, and that’s what rankles federal legislators. Some of them, anyway.
   China’s influence on world markets is fueled by a vast entrepreneurial expansion, but there’s one very important state control. The Chinese yuan isn’t allowed to float, or seek its own market value against all other world currencies; the government arbitrarily follows a policy of keeping the exchange rate fixed at 8.28 yuan to one U.S. dollar.
  (To keep things accurate here, that’s not exactly true; in the last two years, the rate actually moved one day to 8.27 yuan, which probably caused massive shock somewhere in Bejing. The next day, the 8.28 rate returned.)
  This financial fix keeps product flow steady between China and the United States, with the overwhelming amount of the flow of goods moving into our country and enlarging a trade deficit. Cheaper Chinese goods are a buyer’s bonanza here, but more-expensive U.S. products – and everyone involved with manufacturing them – don’t fare so well.
  This especially sets off Sen. Charles Schumer (D-N.Y.), who wastes no time tying the fixed exchange rate to the overall loss of U.S. jobs in the past few years. You’ll often see Sen. Schumer shuffling off to Buffalo and other New York cities to highlight businesses affected or eliminated after facing Chinese competition.
  Sen. Schumer, along with others in Congress, would like to see the Chinese government take the clamps off the exchange rate, noting that this control appears to violate World Trade Organization (WTO) agreements. In a free float among world currencies, the yuan would likely gain value and raise the cost of Chinese goods in comparison with U.S. items (or, in a well-worn phrase from politicians and business executives alike, “level the playing field”).
  To force the Chinese government to take action, Sen. Schumer and others in Washington want to impose a 27.5-percent across-the-board tariff on Chinese imports. The tariff, if passed, would take effect in 180 days if China didn’t start taking steps to allow the yuan to freely float in world financial markets.
  Sen. Schumer, along with Sen. Lindsey Graham (R-S.C.), thumped for the tariff again in late January. It’s not a new idea; Sen. Schumer introduced legislation for this in 2003, which promptly disappeared in the Senate Finance Committee. The Bush administration opposes the tariff, and it’s not likely to move far this time, either.
  So what does this have to do with stone? Let’s go ahead and apply the tariff to a popular Chinese import – granite slabs – and see what happens.
  Applying the standard 3.7-percent tariff on grainte slabs imported from January-November last year, the average price per metric ton for off-the-dock, customs-cleared Chinese products would be $625.34. Work the Schumer-Graham tariff into the mix, and the average price is $786.05. Does this make U.S. granite more attractive to buyers?
  That depends on the eye of the purchaser. Chinese granite slabs aren’t the value leader among imports; India’s slabs average $445.20 per ton off the dock, and Brazilian slabs are only $50 more per ton.
  A 25-percent surcharge probably won’t mean much in deterring sales in specialized areas, such as monuments, where Chinese products sell at a deep discount to comparable U.S. stone. And, total domestic granite production of 452,000 metric tons last year, according to the U.S. Geological Service, is still below the amount of granite slabs imported last year from Brazil alone. (The USGS also reports 1,500 jobs in the U.S. granite mill-and-quarry sector – the exact same workforce for the past 13 years.)
  According to a study from the Cato Institute, the lock on the yuan’s exchange rate does more than flood the United States with cheap goods. China keeps a close control on monetary policies, in part, to prop up state-controlled banks holding up to $400 billion in non-performing loans. Loosen the grip too quick, and China could go into an economic chaos with massive effect on the world markets.
  The across-the-board tariff is probably, in politicalspeak, a non-starter. However, other members of Congress are also making noise about WTO protests. Sooner rather than later, 8.28=1 will likely be only a memory.
  And, yes, the kick will be felt in the worldwide stone market. China’s also the largest importer of stone in the world, and is a center of stone finishing as well as quarrying. Slow down China’s exports, and the whole stone market can slow down, with a likely result of higher prices worldwide.
  Will changing 8.28=1 affect U.S. stone demand if materials prices go up? That depends on consumers, but one thing’s for sure; we’re all in a Golden Age of stone supply and prices. Washington politicos may provide a sudden jolt, but the market’s not going to remain the same.
  For now, we’re still enjoying the good times, and they may last a long time. Just like 8.28=1, though, they won’t last forever.

This article first appeared in the March 2005 print edition of Stone Business. ©2005 Western Business Media Inc.