The following article originally appeared on ManufactureThis.org.

In an interview with CNBC-Asia Pacific, AAM Executive Director Scott Paul outlined the real reason behind China’s monstrous trade surplus. China’s currency is suspected to be undervalued by as much as 40 percent, making U.S. goods imported into the country artificially inexpensive.

“The fastest growing trade deficits we have with China are in high-tech goods,” said Paul, in addition to the fact that Chinese subsidization has made it difficult for American tech companies trying to compete in China’s domestic market.

“We can compete with China when it comes to labor, but we can’t compete with those kind of subsidies,” he said.

See the CNBC’s coverage of the issue and watch Paul’s interview here.

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