Atayne’s running shirt. Photo Courtesy of Atayne.

Labor Day, that traditional American holiday dating back to 1882, invokes a different kind of patriotism this year as Americans struggle to find jobs and a new “American Made” movement takes hold in Congress.

Since 2000, America has lost more than one third – roughly 5.4 million – of its manufacturing jobs. This year, China stands poised for the first time to surpass the United States in terms of manufacturing, according to the Alliance for American Manufacturing.

And, the loss of manufacturing jobs has greatly contributed to the country’s overall unemployment problem, according to Julie Reiser, Co-founder & President of Made in USA Certified, a company that certifies member companies as having truly American-made products.

“The lack of jobs is directly related to two decades of outsourcing and people are starting to realize that as we’ve obliterated our manufacturing base, we’ve obliterated jobs,” Reiser said.

Small businesses are leading the charge toward restoring the domestic manufacturing sector. BusinessNewsDaily spoke with a few who told us why they’ve stayed put and kept their companies operating in the United States against some pretty overwhelming odds.

Domestic Dumpster-diving. Jeremy Litchfield’s Brunswick, Maine-based company, Atayne, makes high-performing outdoor and athletic apparel from recycled plastic bottles and recycled fabric. And it does so in the United States. While garment manufacturers are fleeing the country for Turkey, India, Vietnam and China, Atayne is committed to sourcing and manufacturing its product domestically.

“Our fabrics are made in Tennessee and North Carolina and we do the cutting and sewing of our garments in North Carolina, Vermont and Massachusetts,” Litchfield said. “I am also spear-heading an initiative in Maine to combine our resources [with other companies] to establish a cooperative cutting and sewing facility.”

The company has only been selling its products for two years, but sales this year will exceed $100,000. While still small, the company’s sales have doubled each year, Litchfield said. Producing its products domestically is expected to help spur that growth.

“There’s a lot of waste in the traditional business model for manufacturing apparel,” Litchfield said. “Our model is to apply ‘just-in-time’ manufacturing to the process.” In other words, Atayne doesn’t make any of its products until they are ordered. Working with local manufacturers allows the company to do that.

“American manufacturers are willing to be innovative and flexible,” Litchfield said. “It also allows us to support jobs where our products are being sold.”

Making merry. Merry Lynch, owner of Eat, Drink and Be Merry, a personalized stationery line sold to major retailers, including Neiman Marcus, manufactures her products in Phoenix, Ariz., using local artists, designers, artisans and printers. Producing her products domestically allows her to offer customized goods without keeping inventory because she can turn an order around quickly, producing only what is ordered.

“The goal in forming my company was to be able to run it from my home without inventory,” Lynch said. “I have spent my career in retail and did not want the waste of products that are a result of having the wrong or too much inventory.”

Working locally has allowed her to do that. And while her business may be home-based, it’s growing fast. She’s working on a collection for Saks and will soon debut a line of framed artwork, placemats and pillows that will all be produced in the United States. Sales to Neiman Marcus, alone, were $100,000 this year.

Classic moves. Classic Products, of Piqua, Ohio, a second generation family-owned business, manufactures its specialty residential metal roofing systems in Ohio, Kentucky, Texas, and Iowa, and has annual sales of $20 million.

“Production inside the United States allows us to maintain positive and progressive relationships with our raw materials suppliers,” said company president Todd E. Miller. “Our operations team, and our U.S. distribution channels allow us to manufacture products that are consistently of the highest quality.”

Miller said he is unwilling to jeopardize his product quality through overseas production. The company also buys all of its raw materials and its ancillary items from other U.S. firms.

Scrubbing up. Father and daughter team Rodger and Dahlia Cohen produce their customizable nursing scrubs at the New York City garment factory their family has owned for three generations.

“Everything we do is local, we use only local designers, vendors, and factories to create our line of scrubs, lab coats, and accessories,” said Dahlia Cohen, who’s company is called Scrub Ink.

“There have been many challenges to manufacturing in the states,” Cohen said. “Finding the resources is a challenge in itself, because of the recession and outsourcing, resources are dwindling. Another challenge is producing garments at a competitive price when using American labor. Finding a consumer who appreciates an American-made product is hard as well. Many consumers do not understand the consequences of not supporting American companies.”

Nevertheless, the Cohens won’t be deterred. “Our factory is still going strong and we hope our scrub business will keep it alive for generations to come,” Cohen said.

Diving in. Diving Unlimited International designs and manufactures high-end scuba diving suits for recreational, military, commercial and scientific diving use. It employs 80 people at its San Diego, Calif., factory.

“We have more control over the product here and can ensure quality,” said Susan Long, who runs the company with her father and husband.

Because so many of the company’s diving suits are made-to-order, local manufacturing allows for a lot of flexibility, Long said.

But that’s not the only reason Diving Unlimited International is keeping its production in the United States in spite of the fact that most other diving suits are made overseas.

“To be honest, is pride,” Long said.  “We’ve been here since 1963.  “So many of our employees have been with us for years.  I like having a factory that actually makes things.”

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By BRIAN SPEGELE

BEIJING—Mounting questions about abnormal hormone levels in several Chinese infants who demonstrated early signs of puberty have prompted a Chinese milk supplier and New Zealand dairy giant Fonterra Cooperative Group Ltd. to defend their products.

The issue comes two years after the 2008 milk scandal, in which at least six children died and 300,000 were sickened from milk that contained dangerous levels of melamine, an industrial chemical.

The Chinese company at the center of the latest questions, Nasdaq-listed Synutra International Inc., insists it isn’t to blame for symptoms of sexual prematurity in babies, including breast growth. On Synutra’s website, it says the company has never added illegal hormones to its milk products, and questions links between its product and the babies’ signs of puberty.

“These claims are highly irresponsible and based on speculation instead of scientific evidence,” said the company’s chairman and chief executive, Liang Zhang. “As a well-known and trusted provider of infant formula in China, we are completely confident that our products are safe and our quality levels are industry leading.”

Earlier this month, parents and doctors in central China’s Hubei province began voicing concern that milk powder from Synutra had caused at least three infant girls to exhibit signs of puberty, the state-run Xinhua news agency reported. Earlier this week, officials from the Ministry of Health said they were launching an investigation into the milk powder.

At a news conference on Tuesday, a spokesman for China’s Ministry of Health said multiple factors could cause sexual prematurity, and experts couldn’t yet determine whether food was a factor, Xinhua reported.

In 2008, Fonterra, one of New Zealand’s largest companies, faced a wave of criticism in the aftermath of the milk scandal. Fonterra owned a large stake in one of the companies at the center of the scandal, the now-defunct Sanlu Group, but has flourished in China following Sanlu’s closing. Synutra recalled some of its products during the melamine scare.

Synutra has said it has been using milk powder imported from Europe and New Zealand.

Both Fonterra, which supplies milk powder to Synutra, and New Zealand authorities issued statements Wednesday.

“In New Zealand there are strict legislative controls on the use of hormonal growth promotants,” said the New Zealand Food Safety Authority. “NZFSA is seeking clarification about the media reports from China.”

Fonterra said the country’s strict controls mean the routine testing for hormones is unnecessary. “Fonterra remains 100% confident about the quality of its product,” it said.

Along with receiving supplies from Fonterra, Synutra contracts with local Chinese suppliers and dairy companies in Europe. On Monday, the company’s Nasdaq-listed stock tumbled 27% following reports of the infants’ puberty symptoMs in local media. On Wednesday afternoon, the shares were up two cents each at $13.02, but are down 48% from their 52-week high reached in May.

ABOARD THE USS GEORGE WASHINGTON – Nothing projects U.S. global air and sea power more vividly than supercarriers. Bristling with fighter jets that can reach deep into even landlocked trouble zones, America’s virtually invincible carrier fleet has long enforced its dominance of the high seas.

China may soon put an end to that.

U.S. naval planners are scrambling to deal with what analysts say is a game-changing weapon being developed by China — an unprecedented carrier-killing missile called the Dong Feng 21D that could be launched from land with enough accuracy to penetrate the defenses of even the most advanced moving aircraft carrier at a distance of more than 1,500 kilometers (900 miles).

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EDITOR’S NOTE — The USS George Washington supercarrier recently deployed off North Korea in a high-profile show of U.S. sea power. AP Tokyo News Editor Eric Talmadge was aboard the carrier, and filed this report.

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Analysts say final testing of the missile could come as soon as the end of this year, though questions remain about how fast China will be able to perfect its accuracy to the level needed to threaten a moving carrier at sea.

The weapon, a version of which was displayed last year in a Chinese military parade, could revolutionize China’s role in the Pacific balance of power, seriously weakening Washington’s ability to intervene in any potential conflict over Taiwan or North Korea. It could also deny U.S. ships safe access to international waters near China’s 11,200-mile (18,000-kilometer) -long coastline.

While a nuclear bomb could theoretically sink a carrier, assuming its user was willing to raise the stakes to atomic levels, the conventionally-armed Dong Feng 21D’s uniqueness is in its ability to hit a powerfully defended moving target with pin-point precision.

The Chinese Defense Ministry did not immediately respond to the AP’s request for a comment.

Funded by annual double-digit increases in the defense budget for almost every year of the past two decades, the Chinese navy has become Asia’s largest and has expanded beyond its traditional mission of retaking Taiwan to push its sphere of influence deeper into the Pacific and protect vital maritime trade routes.

“The Navy has long had to fear carrier-killing capabilities,” said Patrick Cronin, senior director of the Asia-Pacific Security Program at the nonpartisan, Washington-based Center for a New American Security. “The emerging Chinese antiship missile capability, and in particular the DF 21D, represents the first post-Cold War capability that is both potentially capable of stopping our naval power projection and deliberately designed for that purpose.”

Setting the stage for a possible conflict, Beijing has grown increasingly vocal in its demands for the U.S. to stay away from the wide swaths of ocean — covering much of the Yellow, East and South China seas — where it claims exclusivity.

It strongly opposed plans to hold U.S.-South Korean war games in the Yellow Sea off the northeastern Chinese coast, saying the participation of the USS George Washington supercarrier, with its 1,092-foot (333-meter) flight deck and 6,250 personnel, would be a provocation because it put Beijing within striking range of U.S. F-18 warplanes.

The carrier instead took part in maneuvers held farther away in the Sea of Japan.

U.S. officials deny Chinese pressure kept it away, and say they will not be told by Beijing where they can operate.

“We reserve the right to exercise in international waters anywhere in the world,” Rear Adm. Daniel Cloyd, who headed the U.S. side of the exercises, said aboard the carrier during the maneuvers, which ended last week.

But the new missile, if able to evade the defenses of a carrier and of the vessels sailing with it, could undermine that policy.

“China can reach out and hit the U.S. well before the U.S. can get close enough to the mainland to hit back,” said Toshi Yoshihara, an associate professor at the U.S. Naval War College. He said U.S. ships have only twice been that vulnerable — against Japan in World War II and against Soviet bombers in the Cold War.

Carrier-killing missiles “could have an enduring psychological effect on U.S. policymakers,” he e-mailed to The AP. “It underscores more broadly that the U.S. Navy no longer rules the waves as it has since the end of World War II. The stark reality is that sea control cannot be taken for granted anymore.”

Yoshihara said the weapon is causing considerable consternation in Washington, though — with attention focused on land wars in Afghanistan and Iraq — its implications haven’t been widely discussed in public.

Analysts note that while much has been made of China’s efforts to ready a carrier fleet of its own, it would likely take decades to catch U.S. carrier crews’ level of expertise, training and experience.

But Beijing does not need to match the U.S. carrier for carrier. The Dong Feng 21D, smarter, and vastly cheaper, could successfully attack a U.S. carrier, or at least deter it from getting too close.

U.S. Defense Secretary Robert Gates warned of the threat in a speech last September at the Air Force Association Convention.

“When considering the military-modernization programs of countries like China, we should be concerned less with their potential ability to challenge the U.S. symmetrically — fighter to fighter or ship to ship — and more with their ability to disrupt our freedom of movement and narrow our strategic options,” he said.

Gates said China’s investments in cyber and anti-satellite warfare, anti-air and anti-ship weaponry, along with ballistic missiles, “could threaten America’s primary way to project power” through its forward air bases and carrier strike groups.

The Pentagon has been worried for years about China getting an anti-ship ballistic missile. The Pentagon considers such a missile an “anti-access,” weapon, meaning that it could deny others access to certain areas.

The Air Force’s top surveillance and intelligence officer, Lt. Gen. David Deptula, told reporters this week that China’s effort to increase anti-access capability is part of a worrisome trend.

He did not single out the DF 21D, but said: “While we might not fight the Chinese, we may end up in situations where we’ll certainly be opposing the equipment that they build and sell around the world.”

Questions remain over when — and if — China will perfect the technology; hitting a moving carrier is no mean feat, requiring state-of-the-art guidance systems, and some experts believe it will take China a decade or so to field a reliable threat. Others, however, say final tests of the missile could come in the next year or two.

Former Navy commander James Kraska, a professor of international law and sea power at the U.S. Naval War College, recently wrote a controversial article in the magazine Orbis outlining a hypothetical scenario set just five years from now in which a Deng Feng 21D missile with a penetrator warhead sinks the USS George Washington.

That would usher in a “new epoch of international order in which Beijing emerges to displace the United States.”

While China’s Defense Ministry never comments on new weapons before they become operational, the DF 21D — which would travel at 10 times the speed of sound and carry conventional payloads — has been much discussed by military buffs online.

A pseudonymous article posted on Xinhuanet, website of China’s official news agency, imagines the U.S. dispatching the George Washington to aid Taiwan against a Chinese attack.

The Chinese would respond with three salvos of DF 21D, the first of which would pierce the hull, start fires and shut down flight operations, the article says. The second would knock out its engines and be accompanied by air attacks. The third wave, the article says, would “send the George Washington to the bottom of the ocean.”

Comments on the article were mostly positive.

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AP writer Christopher Bodeen in Beijing and National Security Writer Anne Gearan in Washington, D.C., contributed to this report.

European Pressphoto AgencyStevedores ride past container berths in Yingkou, Liaoning Province in China.

BEIJING—China’s trade surplus is set to balloon again unless the government takes more steps to support domestic consumption, including letting its currency strengthen, the International Monetary Fund warned in its annual review of the nation’s economy.

The assessment by the IMF staff, published Thursday, reflects the growing concern among some economists and officials that a shift toward a more sustainable pattern of global economic growth could be stalling as the worst of the crisis recedes and countries return to business as usual. Some of the report’s conclusions—including its contention that China’s currency is “substantially” undervalued—were disclosed by the IMF earlier this week.

The fact that the report, known as an Article IV review, was released at all still marks an improvement in the sometimes-testy relationship between China and the fund. China had blocked publication of last year’s review, which was only completed after the IMF backed away from calling China’s currency “fundamentally misaligned.”

Yet the debate over currency policy is only part of the discussion over the broad direction of the Chinese economy, which both the IMF and China’s government agree still depends too much on exports. Supporting domestic consumption instead “will reduce China’s reliance on external demand and better insulate the economy from shocks in overseas markets,” the IMF said.

China gave domestic demand an enormous boost with its stimulus program to combat the effects of the financial crisis, resulting in a surge in imports of raw materials and equipment to feed a construction boom. As a result, China’s current account surplus—the broadest measure of its trade balance—fell sharply, reaching 4.5% of gross domestic product in the first quarter of this year, less than half the peak level of nearly 11% of GDP in 2007.

For China to ensure that its trade surplus continues to decline will be “an exceptionally complicated exercise in macroeconomic engineering” that “will require concerted action on multiple fronts,” the IMF said. Although China has taken some steps in the right direction, including the recent loosening of its currency’s link to the U.S. dollar, the IMF said, “The critical mass of policy reforms that will be needed to realize this goal is not yet fully in place.”

Achieving a shift toward lower trade surpluses in nations like China, and smaller trade deficits in nations like the U.S., should help global economic growth to be faster and more broad-based, the leaders of the Group of 20 major economies agreed at their summit meeting last month.

But with China’s government now gradually phasing out its stimulus program, and economies in the rest of the world getting closer to normal, the factors that drove the trade surplus down are in danger of being exhausted, the IMF report said. Earlier this month, the U.S. Treasury made a similar argument, warning that “China’s trade surplus is likely to rise again as the rest of the world recovers.”

The IMF noted that China’s government disagreed with its assessment, arguing that continued fast growth, rising wages and already-implemented reforms will ensure that the current-account surplus keeps falling, to about 4% of GDP over the next few years.

The IMF urged China to press ahead with measures such as allowing higher and more market-driven interest rates; reducing taxes to encourage consumption; improving healthcare coverage; accelerating urbanization by reducing restrictions on migration; and raising low, government-set prices of energy and raw materials.

China also needs to adjust its currency, the IMF said, which despite official promises of greater flexibility has so far moved very little. “The current undervaluation is counterproductive and acts as a headwind to increasing private consumption,” the report said. “A stronger currency will help increase the purchasing power of households, raise the labor share of income, and reorient investment toward those sectors that serve the domestic market.”

China has contested that analysis, and the report notes the Chinese government believes the currency’s value is now “much closer to equilibrium than at any time before.”

The IMF’s focus on medium-term structural issues reflects its view that the Chinese economy’s recovery is now solidly established, with little danger of high inflation. The fund expects China’s headline inflation rate to fall in the second half of this year and hover around 2% to 3% annually in coming years.

The IMF noted that China worries that efforts to cut budget deficits in Europe, the U.S. and Japan could weaken global growth, while China itself has room for more stimulus if needed. However, it said that after the lending binge that resulted from the previous stimulus plan, China also needs to deal with risks to the banking sector as well as continued risks of a bubble in the real-estate market.

Write to Andrew Batson at andrew.batson@wsj.com

China is now the world’s biggest energy consumer, knocking the U.S. off a perch it held for more than a century, according to new data from the International Energy Agency.

The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower.

The figures reflect, in part, how the global recession hit the U.S. more severely than China and hurt American industrial activity and energy use. Still, China’s total energy consumption has clocked annual double-digit growth rates for many years, driven by the country’s big industrial base. Highlighting how quickly its energy demand has increased, China’s total energy consumption was just half the size of the U.S. 10 years ago.

AFP/Getty ImagesA petrol station worker prepares to fill up a car in Hong Kong.

“The fact that China overtook the U.S. as the world’s largest energy consumer symbolizes the start of a new age in the history of energy,” IEA chief economist Fatih Birol said in an interview. The U.S. had been the biggest overall energy consumer since the early 1900s, he said. The IEA is an energy adviser to most of the world’s biggest economies.

China’s voracious energy demand helps explain why the country—which gets most of its electricity from coal, the dirtiest of fossil-fuel resources—passed the U.S. in 2007 as the world’s largest emitter of carbon dioxide emissions and other greenhouse gases.

The U.S. is still by far the biggest energy consumer per capita, with the average American burning five times as much energy annually as the average Chinese citizen, said Mr. Birol, who has been in his current role for six years.

The U.S. also is the biggest oil consumer by a wide margin, going through on average roughly 19 million barrels a day—with China at a distant second at about 9.2 million barrels a day. But many oil analysts believe U.S. crude demand has peaked or is unlikely to grow very much in coming years because of improved energy efficiency and more-stringent vehicle fuel-efficiency regulations.

“ I wonder how much diesel is consumed by those massive engines in the hundreds of container ships that bring our merchandise from China… and then head back empty? ”

—Andrew Moore

Prior to the recession, China had been expected to become the biggest energy consumer in about five years, but the economic malaise and energy-efficiency programs in the U.S. brought forward the date of that superlative, Mr. Birol said.

The decreased energy “intensity” of the U.S. economy is a key reason investors, such as General Electric Co., have increasingly looked to China as a driver of future growth. Mr. Birol said China requires total energy investments of some $4 trillion over the next 20 years to keep feeding its economy and to avoid power blackouts and fuel shortages.

Mr. Birol, previously an economist at the Organization of Petroleum Exporting Countries, said China is expected to build over the next 15 years some 1,000 gigawatts of new power-generation capacity. That is about the total amount of electricity-generation capacity in the U.S. currently, and the construction of all those gigawatts occurred over several decades. “This demonstrates the major growth we are talking about” in energy demand and capacity growth in China, Mr. Birol said.

Write to Spencer Swartz at spencer.swartz@wsj.com

WASHINGTON (AP) — The U.S. trade deficit widened in May to the highest level in 18 months as a rebounding economy pushed up demand for imports of foreign-made cars, computers and clothing.

The trade deficit increased 4.8 percent to $42.3 billion, the largest imbalance since November 2008, the Commerce Department reported Tuesday. American exports of goods and services rose 2.4 percent but this increase was outpaced by a 2.9 percent rise in imports.

American manufacturing has been a standout performer so far in this recovery, benefiting from a global economic recovery. But the concern is that export sales will be hurt by the European debt crisis, which has dampened growth prospects in Europe.

Through May, the U.S. trade deficit is running at an annual rate of $474.8 billion, up by 26.6 percent from $374.9 billion deficit for all of 2009. That had been the lowest annual trade gap since 2001, another year when the country was in recession.

The rise in the May deficit came despite the fact that oil imports dropped by 9.1 percent to $27.6 billion as both the price of oil and the volume of shipments declined slightly.

The 2.4 percent rise in exports in May compared to April pushed sales of American goods and services to $152.3 billion, the highest level since September 2008. While sales of soybeans, wheat and other farm products were down in May, demand for American-made autos, industrial machinery, medical equipment and commercial aircraft all increased.

Imports rose 2.9 percent to $194.5 billion, the highest level since October 2008, reflecting big gains in imports of cars, computers, oil drilling equipment and industrial machinery.

The deficit with the European Union rose 7.5 percent to $6.2 billion as imports from Europe rose by 3.2 percent, ouptacing a 1.9 percent rise in U.S. exports to that region.

The concern is that American exports could falter in coming months if a debt crisis in Europe pushes that region back into recession. The debt troubles have also caused the value of the euro to weaken against the dollar this year, making American goods less competitive in the 16 nations that use the euro currency.

The deficit with China rose to $22.3 billion, the largest imblanace since last October and a 15.4 percent jump from the April deficit. So far this year, the U.S. deficit with China, the largest imbalance with any individual country, is up 10.2 percent from the same period a year ago.

The rising deficit with China at a time of high unemployment in the United States is increasing pressure on the Obama administration and Congress to adopt a tougher stance in trade disputes with China.

Last week, the Obama administration declined to cite China in a report to Congress as a country that was unfairly manipulating its currency to gain trade advantages. That disappointed American manufacturers who believe the Chinese yuan is undervalued by as much as 40 percent.

On June 19, just before leaders of the Group of 20 major industrial countries met in Toronto, China announced it was going to allow more flexibility in its currency. But critics contend that the yuan has risen in value only slightly since that time.

Sen. Charles Schumer, D-N.Y., has vowed to push for an early Senate vote on legislation that would impose sanctions on Chinese imports to the United States if Beijing does not accelerate its currency reforms.

Washington and other trading partners complain China’s exchange rate controls keep the yuan undervalued, giving its exporters an unfair advantage. Beijing announced in June it would allow more flexibility but ruled out any big changes.

Market pressure for a stronger yuan is easing because investors are buying more dollars as a hedge against the European debt crisis, the State Administration of Foreign Exchange said in a statement. It said the inflow of currency has eased since May.

“We will dynamically manage and adjust the floating of the renminbi’s exchange rate and keep it at a basically stable and reasonable level,” the agency said, referring to the yuan by its other official name.

The yuan has gained about 0.8 percent against the U.S. dollar since Beijing’s June announcement. It has risen rapidly against the euro as Europe wrestles with its debt crisis, gaining 4.5 percent since the start of June and 14.2 percent so far this year.

Thursday’s comments came in the fourth of a series of statements by SAFE on its handling of China’s foreign exchange. It announced no policy changes.

The Chinese government has rejected complaints the yuan is undervalued and says it is at an appropriate level. It says any changes in policy will be gradual.

The currency regulator also said China’s trade surplus will stay “relatively big,” but its growth rate will slow. The government is due to release its trade data Saturday for June and the first half of the year.

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Associated Press researcher Bonnie Cao contributed to this report.

Currency manipulation is the practice of artificially setting exchange rates by the central banks of some of the U.S. trading partners in order to gain an unfair advantage.  In addition to distorting the market, it is an illegal practice under both U.S. law and international agreements.

A number of our trading partners are manipulating the currency markets to keep the U.S. dollar artificially high, and their own currencies artificially low.  By exploiting the world currency markets, countries like China and Japan effectively subsidize their exports to the U.S., and place a tariff on U.S. shipments to them.  This manipulation is taking place on a massive scale.  By some estimates, China’s Yuan is undervalued by as much as 40 percent in comparison to the U.S. dollar.

How does this happen?

Typically currency manipulation occurs when a country fixes the exchange rate of its currency relative to the currency of another country.  It can include a requirement for a fixed exchange rate or the mandatory use of a country’s central bank for foreign exchange sales.  This is done to give a country an unfair competitive advantage.

The effects of China’s manipulated and subsidized currency, for example, are extensive.  First, China’s currency manipulation has contributed to the dramatic increase in the U.S. bilateral trade deficit with China, which now tops $268 billion a year.  China has amassed foreign exchange reserves of more than $1 trillion, far surpassing any other nation’s reserves. China’s currency manipulation also attracts foreign investment into China and away from American manufacturing facilities.  This flow of investment has already cost American workers their jobs.

When countries adopt artificial exchange rates that are not based on market forces, they not only exacerbate the U.S. trade imbalance, but they create global trade imbalances.

Additionally, currency manipulation results in a sizeable difference in labor costs.  This difference creates the illusion of a comparative advantage for a given country.  Ultimately, currency manipulation is a subsidy that can put American manufacturers at an unfair disadvantage in the global marketplace.

China’s recent move to restrict exports of certain raw materials is raising questions about the fairness and effectiveness of its new policies from economic organizations and trading partners.