WASHINGTON, D.C. (FORTUNE Small Business Magazine) - Doug Bartlett grew up proud of his family's business. Founded in 1952, Bartlett Manufacturing may well be the oldest family-held printed circuitboard maker in the country. After a stint in the Marines, Bartlett joined the Cary, Ill., firm, rising to become its CEO.

Sales hit $22 million in 1999, but that's when the trouble started. By the end of 2005, revenues had slid to just $8.5 million. Along the way, Bartlett, 49, was forced to lay off three-quarters of his 250 employees. The dot-com bust and 9/11 didn't help matters, but his main culprit in the contraction? China.

To American consumers Chinese goods have become synonymous with "cheap," but few realize that's not entirely the result of market forces. Beijing keeps its currency, the yuan, fixed at a set rate against the dollar and undervalued by as much as 40%. That's great news for the large American conglomerates that manufacture goods inexpensively in China and ship them back to the U.S. It's also critical for retailers such as Target and Wal-Mart (as well as many small importers) that depend on MADE IN CHINA prices.

But smaller domestic manufacturers such as Bartlett say the artificially low yuan makes it difficult, if not impossible, to compete. The National Association of Manufacturers (NAM) remains the strongest lobbying voice for the industry, yet the group has avoided backing aggressive action to level the playing field for the majority of its members. Why? It comes down to dollars.

Although small and medium-sized companies make up about two-thirds of the organization's 13,000 members, they hold only a quarter of the seats on the 225-member board. Larger companies, which are more likely to be tied in with China, pay the bulk of NAM's dues--and get what they pay for in a system that amounts to one dollar, one vote. NAM admits that votes skew to the bigger donors, but insists that its recommended trade policy reflects the "consensus" of all members.

NAM's larger members and staffers say they want to remain in step with--and in the good graces of--the Bush administration and its cautious approach to China.

"We need to work with the congressional leadership and administration," said Frank Vargo, NAM VP for international economic affairs. NAM's board adopted a policy that "urges China to let the [yuan] appreciate significantly in the near future"--this after China raised its currency by an ineffectual 2% in July.

Both President Bush and Treasury Secretary John Snow brought up the currency issue in meetings with Chinese leaders but did not lean too heavily, perhaps because Washington needs Beijing to recycle its dollar reserves into Treasury bills and help finance the growing U.S. budget deficit.

The deflated yuan is one reason Penn United Technology, a $70-million-a-year Cabot, Pa., maker of precision tools, has gone as far as hiring its own head of government affairs, David Frengel. Although the company is thriving, it has done so by avoiding sectors dominated by lower-cost Chinese tool and die manufacturers and focusing on markets such as specialized medical equipment. "There's a conflict between those who back more liberal trade and those making a great deal of money benefiting from China's unfair trade practices," says Frengel, who sits on the trade policy committee at NAM.

Like Penn United, many smaller manufacturers and their supporters are challenging the Bush-NAM policy of gentle prodding. In November a bipartisan congressional advisory panel made up of executives, former officials, and trade policy wonks, called for 25% tariffs on Chinese goods, an approach echoed in a bill by Senators Charles Schumer (D-New York) and Lindsey Graham (R-South Carolina) that is stalled in Congress.

Another bill, proposed by Representatives Tim Ryan (D-Ohio) and Duncan Hunter (R-California), would allow citing Beijing for currency manipulation, opening the door to retaliatory tariffs.

"If China wants to be part of the global trade system, it has to play by the rules," Ryan asserts. "This single issue is going to define NAM in the future because the majority of its members want action." NAM officials say they worry that Ryan-Hunter might be viewed as the first volley in a trade war, eventually blocking U.S. access to China's 1.3 billion consumers.

Grass-roots pressure is growing, but the yuan continues to languish. The China Currency Coalition, a lobbying group made up of labor unions, industry associations (which count many small manufacturers as members), and individual companies, has the bill at the top of its agenda. Doug Bartlett, who co-chairs the coalition, ironically sees his interests more closely aligned with labor than with the larger players in manufacturing.

The wait for Beijing to act is likely to be a long one. Given the state of manufacturing, time may be running out for domestic producers, which are growing weaker as the trade deficit soars. But without a push from NAM, little is likely to change. "We've got to have a level playing field," says Richard Wilkey, a NAM board member and owner of small manufacturer Fisher Barton in Watertown, Wis. "But I worry whether there will be enough survivors to put on the pressure."

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