Can anyone talk to China anymore?
It's an increasingly important question for the United States and the rest of the world to ponder as the emerging giant asserts itself globally.
The House voted overwhelmingly last week to give President Obama sweeping authority to impose steep tariffs on Chinese imports. The move was aimed at retaliating against Beijing's monetary policy, which essentially keeps the value of the nation's currency artificially low so Chinese manufacturers can dump cheap exports on developed economies.
Whether the Senate will go along with the plan is still open to debate. But it's probably more pertinent to ask exactly what China would do if the U.S. actually did slap harsh tariffs on its goods? Based on China's recent behavior, any rash moves along those lines could trigger a deeply bitter reaction and possibly an outright trade war that, frighteningly, the U.S. would not win.
Consider that before the president's appearance in front of the U.N. General Assembly in September he had a two-hour meeting with Chinese Premier Wen Jiabao, in which he basically demanded that China stop manipulating its currency. China's response? Ho-hum. Precisely how much money do you owe us again?
Meanwhile, on the other side of the globe, Japanese manufacturing companies suddenly discovered that they'd been cut off from the rare earth minerals that they require to make high-tech products such as computers and cell phones as well as energy-efficient items like wind turbines and hybrid cars. What happened to Japan's rare earth imports? According to the Japanese government, China, which controls 93% of the global rare earth supply, decided to block shipments to Japan to score points in a diplomatic dispute. A few weeks earlier a Chinese fishing boat in Japanese waters crashed into a couple of Japanese coast guard ships. Japan seized the boat and arrested the captain. In response, China promptly detained four Japanese employees of Fujita Corp. on suspicion of filming a restricted military area in northern China.
So Japan proposed an exchange: the fishing boat captain in return for the four arrested Japanese citizens. But Japanese government officials say China balked and then, in an awesome display of economic power, simply cut off its rare earth shipments to Japan. The Chinese government denied the accusations, but true or not, Japan suddenly found itself in an unwanted trade war with its biggest trading partner. Through the first half of this year alone, China had bought $20 billion of Japanese government bonds and Chinese companies had invested roughly $120 million in Japanese businesses. This provided a needed boost to Japan's sagging economy.
Sensing the coming heat, the Japanese government acquiesced and freed the fishing boat captain on Sept. 24 with no strings attached. Only then did Beijing's rare earth minerals showdown ease. And last week, China released three of the Fujita employees it was holding. However, one Japanese citizen still remains in a Chinese prison cell, a bargaining chip for a later negotiation.
Why would China so brazenly challenge the world's economic powers like this? Because the country's leaders know what our leaders are only beginning to understand -- that China would probably win a global trade war.
In March 2009, the Pentagon for the first time held a series of economic war games exercises. The soldiers were Wall Street traders and executives, economists and academics. The weapons were stocks, bonds and currencies. The participants were divided into teams: the U.S., China, Russia, Japan, the European Union and so on. Then the teams were presented with different scenarios -- North Korea is imploding, a major global economy is melting down -- and told to do what was in their best interests. Our intelligence experts watched as the economic conflicts played out.
What the exercises showed was that the U.S. consistently lost to China in economic warfare. Part of the reason was that the U.S. could be easily distracted by expensive side conflicts that sapped our economic strength. But the more important reason was that China could inflict real pain on the U.S. without feeling it at home. For instance, by simply moving the maturities of some of its $850 billion in Treasury holdings from 90 days to 60 days, it could cause chaos in the U.S. stock markets. Or China could sell just a trickle of its U.S. financial assets and signal that it didn't have confidence in the U.S. economy, setting off a panic here.
The overall lesson from the exercise was that, for all of our saber-rattling, in our weakened economic state we have to be careful about poking this dragon. And what's more, everyone involved knows it.
So returning to the original question: Can anyone talk to China anymore? Sadly, for the time being it appears the answer is no.
Originally printed in the Los Angeles Times.
Thank "small government loving, middle class hugging, fiscally conservative Republicans".
More than half the population are still hopelessly poor farmers. the Chinese economy has just passed the japanese, meaning that it counts for 1/3 of the US-economy and 1/4 of the EU economy having 60% more people than the 2 combined.
It means that the average chinese has a wealth of about 10% ot the average person in the western world.
I wish the chinese luck on their way out of poverty and misery, and I think that an economic development that is giving the chinese people a fair share of the prosperity of the world will benefit us all in the long run.
Our job must be to secure, that their impact on the environment is as low as possiple. it means, that we have to share know how and technology about environmental safe solutions.
I rather see a rich and prosperous china than an poor and desperate one. Try to imagine a china with a North Corean economy. would that be preferable? I have my doubts.
The best chance for a peacefull and democratic development in China is a well functioning economygiving hope for progress in the standard of living.
I don't think trade will create a democracy in China.
The Chinese Communist Party benefits most from this trade.
Its supposed 'economic miracle' is a sham for the vast majority of its population.
To me, its like investing in Apartheid South Africa.
Besides that, trade between nations should enrich both nations.
American workers need a seat at the table.
The current system is more VooDoo trickle down economics.
The CPC is 70 million strong, or more than 5% of the population. In America, what do you figure the percent is, of that top elite that controls and benefits from that control of the nation? I posit it is much less than 1%.
Trade between China and America enriches BOTH nations, much more America than China. The profit balance ($80 Billion vs. a max. of around $15 Billion a year) is overwhelmingly in favor of America.
The American workers have never had much of a seat anywhere even in America.
As a Chinese citizen, I'm shocked to see you write that "Beijing has a 70%+ favorable poll rating in poll after poll, many conducted by foreign entities"....
May I possiblly ask, when were such kind of polls conducted? Who dare to conduct such a poll? Who voted for it? "Many conducted by foreign entities", what kind of entity, did they come from North Korea? Can I have a look on the report?
What expenses would you cut?
We do not need the huge overseas military presence we have. I say we should have minimal basing overseas, like 10 nations, not more than 100.
Then most domestic spending needs to be drastically cut. A total end to money transfers to state governments. All states should pay 100% of their own way, and it serves to put more power in the hands of federal officials on what should be locally controlled.
For the sake of argument you favorite federal program totally and permanently cut.
In time of emergency, a 10% tax (with no deductions or offset) on the wealth of everybody to help pay down national debt is more than viable. Everybody pulls his or her own weight - the rich do not NEED all that wealth - they can't even spend it all (or are clearly unwilling to spend it at all).
According to a British blogger:
"Finally, America has a whopping big alternative to both negotiations and trade war available to it—one which happens to be win-win. That is: pursue adequate fiscal and monetary stimulus. At the present nominal exchange rate, expansionary monetary policy in America would prove highly inflationary in China, which is a darn good reason for everyone in China (including those pesky exporters) to favour appreciation. And adequate stimulus would boost the global economic outlook, which would boost the Chinese economic outlook, and as explained above an improved Chinese outlook is the key factor in generating rapid appreciation."
Yeah, a turkey for every pot time!!
Joking aside, it certainly sounds like a plan. QE2 backed with QE3 through 10. Everyone will have money to spend again, and the real estate market will get a new lease on life (pun intended).
"The article is ridiculous. The Federal Reserve could buy or sell bonds etc. to even out any actions the Chinese may take with their US bond holdings.
This is just an attempt to scare people into keeping the current rigged trading system going - - - that re-distributes money from the US middle class to international billionaires."
I would only add that it also promotes corrupt regimes which use their citizens for slave labor.
Look, this column was not meant to coddle China's policies or urge complacency on America's part. The purpose was to explain in plain language why the U.S. can't go it alone. Unilateral tariffs are useful political red meat. But unless we have the cooperation of China's other major trade partners, namely the EU, they'll be toothless.
I'm glad you don't want to coddle China.
The thrust of your article seemed, to me, to be that there was nothing we can do.
Just stating "we can't go it alone" is a strong assertion.
I don't feel China's position is as strong as you believe.
Nor do I believe that China selling off U.S. treasuries would be as disastrous as your article claims.
American workers are already losing in this Unfair game.
When we say America can't win in a trade war, I think we have to define who we mean by America. If you're talking about big financial concerns and investors, then you may be correct.
Growing the GDP doesn't automatically enrich average Americans.
Nor does a bull stock market.
I'd be interested in hearing your policy suggestions.
If the Feds inject another $3 Trillion into the economy TODAY, and take steps to make sure that the money actually goes to the people per capita (instead to all going to the 1% at the top), most of the malaise in America today would be gone. Folks would start spending, businesses would start investing their $2 Trillion cash hoard and invest for tomorrow, and hire more Americans.
Add to that an open armed invitation for FDI into export oriented industries (which adds another $100 Billion to the till), then in no time at all America would again be the No. 1 exporter in the world (today America is No. 3, just behind Germany and China).
Then America would have to worry about labor shortage.
China is not holding the freshly printed US Bonds that they bought with US dollars earned by making products that US consumers bought!
China is redeeming these freshly printed paper US bonds for title to our privately owned US located businesses, factories, casinos, hotels, farms, land, ports, businesses, refineries, forests, ports, breweries, refineries, and other assets instead of Gold from Ft. Knox.
Foreign entities will soon own everything of value in the USA as they trade their US bonds and US dollars earned by manufacturing US consumer products for title to assets located in the USA. Foreigners will then become the major (or maybe the only) source of employment for US citizens.
The USA population will then become employees; possibly indentured servants; or maybe even beg to become slaves owned by the foreign countries and/or foreign individuals that will own everything of value in the USA in the very near future if the US government continues to destroy the US economy.
We are condeming our children and future unborn generations of US citizens to work hard and pay off these US bonds when they become due, and also try to buy back these foreign owned assets if that is even possible.
If your supposition is correct, that the Chicoms are investing their hard earned trade dollars (with only 1-5% profits) and investing them as FDI in America, that'd be a GREAT thing!! That would create American jobs in America.
But unfortunately the xenophobic Washington has for years shown extreme hostility - as a result the cumulative Chinese FDI allowed into America was only US$3.1 Billion by June 2009.
In contrast, by June, 2009, the total number of U.S. investment projects in China had exceeded 57,000 and the value of accumulated U.S. investment in China reached 61 billion dollars. These U.S. companies operating in China REPORT annual profits of at least 80 billion U.S. dollars. The actual profits are of course much higher, as they are hidden with transfer pricing moves. According to the American Chamber of Commerce in China's 2009 White Paper, about 74 percent of American businesses in China made profits and 91 percent chose to stay in China to expand their business. Many of these businesses are enjoying not only whatever industrial policies promulgated by Beijing, but they are also enjoying preferred status, advantaged over the locals.
As for your fears that the Chinese would end up owning ALL of America - stop the paranoia already!! Total assets in the U.S. are US$55 Trillion (in private hands). The Chinese have only $2.5 Trillion in foreign currencies. Drop in the bucket.
This economic situation is similar to the USA "selling our own body parts" to keep from working to make the things that we consume and also to pay for today's government services that are in excess of our tax collections.
This is the basic structural economic foundation problem that will destroy the US economic miracle.
What price will you have to pay for US made products? If you can even find them.
Free Trade means that US workers must (generally) compete with foreign worker pay scales, foreign benefit packages (none), the more productive foreign labor work rules (none), and the lower environmental manufacturing costs that are available in foreign countries.
We c0ould repeal all of the "Free Trade" laws and other anti-business laws that were created in the last 40 years, and then the corporations (and/or individual businessmen) could not outsource the manufacturing jobs to foreigners because of the extremely high US import tariffs that we could re-impose to protect our US jobs.
Trading with China was the ONLY poverty reduction program that worked in America in the last 20 years.
Does anyone actually believe that the US Government can just continuously borrow more and more US dollars back from foreigners (actually the US sells foreigners freshly printed paper US Bonds in return for the US dollars that foreigners earned by making consumer goods that US citizens consumed) and then use these dollars to pay for placing and keeping US citizens on various US, State, and Local bureaucratic government payrolls to solve the unemployment problem.
These freshly printed paper US Bonds that the US government sells to people in industrialized nations have no value, except that they are redeemable for title to privately owned businesses, factories, casinos, hotels, farms, land, ports, breweries, refineries, forests, ports, breweries, refineries, and other privately owned assets located in the USA that were created by previous productive US generations, instead of Gold from Ft. Knox.
The US government is going to have to start printing and selling more and more of these US Bonds, and other debt instruments to foreign individuals at greater and greater discounts from present value/present worth to get enough foreign held US dollars back from foreign individuals in sufficient quantity to pay for all of these the growing US government expenses that are in excess of our US federal government tax collections, as the USA runs out of titles to assets that can be sold to foreigners to redeem the US bonds that the foreigners purchased.
The members of that family can then reflect their real wealth and financial security with the net positive accumulation of grain, gold, cattle, jewels, land, buildings, factories, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family.
US government administrations of both major political parties have killed and eaten that golden goose that laid those golden eggs, won WWII, and created the abundant lifestyle that US citizens enjoyed for a couple of decades after WWII until the government created Free Trade legislation and also de-emphasized engineering, technical and scientific education.
Every time that the USA prints fresh dollars or US Bonds, the value and buying power of each printed dollar reduces proportionately.
One US Dollar that would buy about 8 Mexican pesos in 1960 can now exchange for as much as 15,000 of the 1960 Mexican pesos today.
This is equivalent to about 187,500% inflation over that period.
A $2.00 USA loaf of bread would then cost $3,750.00 if the USA implemented Mexican type economic monetary policies, and then $4,000.00 next week, and $5000 the week after.
Why do we have to borrow US dollars from foreigners, and not our own financial institutions?
The Chinese, Indians, Pakistanis, and Brazilians are very industrious people that have created a continuous flow of incoming US paper dollars that they earn from US importers/retailers for making the things that US citizens consume.
Only small percent of the freshly printed paper T-Bills, US Bonds, etc. are bought by US citizens and US organizations at the regular FED auctions.
1) The US has assests in China to forment civil unrest, economic espionage, and industrial espionage. If the Chinese try to cause a panic here the US can certainly cause civil unrest there as well.
2) Even with the new missle China recently developed the US can, with relative ease, destroy Chinese shipping, ports, and capacity to conduct trade with any nation on the planet. If China loses its ability to export cheap products to ANY market it will collapse rapidly.
We should never forget the M.A.D. dynamic we now share with China. China understands that anything they do economically to destablize the US will be seen as an act of war. It may not save the US, but it does assure that China collapses with us. We shall hope this M.A.D. threat will suffice.
China is using their hard earned and newly created wealth to accelerate their scientific capabilities, including their nuclear and rocket delivery systems.
China is stepping up research of particle accelerator on its own, according to reports from the ongoing 2nd Asia Accelerator Conference. It is said that the Institute of High Energy Physics under the Chinese Academy of Sciences is making an active effort in design and research of positive-negative electron impinging machine in Beijing, and hopes for a 100-fold increase in the brightness of the machine.
The US government elected to cease construction of the US Super Collider at Waxahachie, Texas a few decades ago, but decided to spend many times that amount to bail out various Wall Street financial Master Criminals.
As China increases their Nuclear Research, China will soon surpass the USA in Nuclear and other advanced scientific technologies and capabilities.
As China increases their Nuclear Research, China will soon surpass the USA in Nuclear and other advanced scientific technologies and capabilities.
Chinese nuclear weapon technology and capabilities will soon surpass the USA scientific technology.
The Chinese now have had the Rocket Guidance technology (purchased from Hughes Aircraft in the 1990's in return for a political campaign contribution via Chinagate bagman Johnny Chung) for intercontinental ballistic targeting anywhere in the USA (and anywhere else around the world).
I believe that Mao was only partially correct because a strong economy is also necessary to arm, feed, support, house, pay and otherwise maintain a strong military force.
All soldiers need to be paid (with a currency that has purchasing value), fed, and happy, or they might overthrow whatever government might be in power at that particular time.
China now has the strong economy and is rapidly building their military technology and military might that will surpass the military capability of the USA in the very near future.
If the USA decides to pirate (steal or nationalize) all foreign owned property, ala Mexico in the 1960's, Venezuela in the 1990's, etc., China will probably be able to enforce their property rights with appropriate punitive military action against US citizens on US soil if their military capability exceeds the USA military capability, especially if they can provide food and pay in some valuable currency to the US military for their services.
If our economy collapses, there will be not be any jobs for anyone at present wages. When we have destroyed the purchasing value of the US dollar, you might make $3000.00 per hour but a loaf of bread might cost $35,000.00 if you can find one for sale.
"fear of what would happen if the Chinese stopped buying American bonds. But this fear is completely misplaced: in a world awash with excess savings, we don’t need China’s money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell. "
http://www.nytimes.com/2010/09/13/opinion/13krugman.html?ref=paulkrugman
All you're doing is pushing the conventional wisdom and contributing to America's paralysis vs. China.