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Think Different about Chinese Currency Manipulation

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The Currency Exchange Rate Oversight Reform Act, informally known as the Currency Bill, received a great deal of attention in the media a few weeks back. Passed by the Senate, the bill was a solid piece of legislation aimed squarely at the most destructive of China's many abusive trade policies. However, despite considerable support, the House isn't taking it up and there is no reason to expect President Obama to sign it or for his administration enforce it.

This is because, much of our government, including this White House, has been co-opted by the multinational corporations that profit from China's trade abuses and exploitation of its labor and environment. This cozy system drives up returns on U.S. capital invested in China, making the rich richer, while it undermines the value of American labor, making the poor poorer. No amount of U.S. government largesse can overcome this structural problem.
What is needed to fix our economic problem at home is a show of American resolve on trade. China's pushing its Yuan up dramatically the day before the Senate vote clearly demonstrated what every Chinese dissident will tell you: the Boys from Beijing respect power and action, not supplication.

That hasn't stopped China's apologists in America from rushing to the barricades in defense of the abomination they call "free trade," a one-sided wealth transfer mechanism that has transformed America's manufacturing heartland into a wasteland and Shanghai into a towering dreamscape. Republican Senator Bob Corker of Tennessee trotted out the usual scare tactics and howled that the bill's sanctions would launch a "trade war." Well, Senator, 25 years of escalating trade deficits looks an awful lot like a trade war from Cleveland or Detroit.

However, for those who can't stomach a tariff or a sanction under any guise, we need an outside the box proposal. presidential candidate Buddy Roemer and I (Autry) offer an elegantly simple suggestion: disable China's currency manipulation mechanism now, and simultaneously defuse its growing threat to our national sovereignty.

To keep its currency trading within a specified range, China runs a "sterilization process." This involves vacuuming a vast amount of our Wal-Mart dollars out of their ever-growing trade surplus. The Chinese must ensure that these dollars are not eventually sold on the foreign exchange markets because that would drive down the relative price of the U.S. currency, making American goods more competitive in Chinese and global markets -- the one thing our so-called "trading partner" never wants to happen. So, China buys U.S. Treasuries as the surest way to make these greenbacks "go away," and as has become the largest holder of U.S. treasury securities, to the tune of $1.1 trillion or nearly 25 percent of total foreign holdings. By comparison, the second largest holder is Japan, at $936 billion, followed by the United Kingdom at $397 billion.

Beijing's funding America's debt keeps stimulus addicts like our President quietly inside China's pocket and also supplies China with a financial "nuclear option" against America. A recent People's Daily article titled "China must punish U.S. for Taiwan arm sales with 'financial weapon'" urges Beijing to establish a "direct link between the U.S. Treasury bond purchase and U.S. domestic politics." Let's be clear, People's Daily editorials do not reflect individual opinions, but are actually subtle announcements of new Communist Party doctrine. Do any of us, even "free trade" loving Senators, wish to live in an America where the Chinese Communist Party dictates our politics?

We should address this clear and present danger to our economy and our sovereignty straight on and cut off Beijing's purchases of American debt. Shutting off China's access to this currency disposal site will break their sterilization system. We could and should prevent any hostile nation from buying or redeeming our bonds; Congress and the President should pass special legislation that directs the Treasury not to accept bids on new U.S. bond issues from China. If China threatens to "dump" U.S. debt, we should declare the serialized bonds they hold to be "non-transferable." They could, of course, buy our debt on the secondary market, but the dollars they used would hit the foreign exchange market -- precisely what they were trying to prevent in buying them to begin with.

Yes, we hear those howls of, "how will we finance our deficit?" Clearly, borrowing money from China in order to buy their stuff has never been an effective fiscal or economic plan for America. Lowering our trade deficit would raise GDP, increase government revenues and plug a giant leakage that renders any Keynesian stimulus ineffective. In the meantime, we have Americans and real friends who remain ready buyers of our bonds, when they pay sufficient returns.

Yes, removing a source of demand will drive up bond yields and make it harder for the Fed to keep interest rates near zero. So what? Paying higher rates to our kids rather than sending checks to Beijing will close another leakage. Interest rates are not America's problem; jobs are America's problem! Bankers -- Roemer has run a bank -- really don't want to loan money at four percent for 30 years, and all the new regulatory requirements have made it increasingly difficult to qualify for a loan anyway. Further, Americans are more debt-adverse and businesses see no reason to borrow money for expansion -- other than to invest it in China.
In any case, if the current currency bill actually worked and China stopped their sterilization process, their bond purchases would halt! They don't buy those things because they love us or think it's a good investment. They lose money doing it. No matter how we stop the Chinese currency scam, we will need to find a new way to fund our debt, or better yet, the will power to control it.

Lastly, we need to realize that China's taste for America extends beyond bonds. A China which threatens to influence our domestic politics via bond purchases would not hesitate to leverage a communist-controlled Bank of America or ConAgra. Therefore, we must also block the Chinese government, its State Owned Enterprises and their proxies from investing in U.S. corporations, land and resources, again preventing them from burying those dollars they don't want to see exchanged on the global markets.

Decades of engagement with China's corrupt and brutal rulers have produced no improvement in that regime and the promise of access to their market remains illusionary. Defense of our economy and our national sovereignty demand that we do something. Keeping the Chinese government from burying their "sterilized" dollars in American soil is the cleanest way to start.

Buddy Roemer is a Republican candidate for President, the former Governor of Louisiana and a four term U.S. Congressman. He holds a degree in economics and an MBA from Harvard. Find Buddy Online at:

Greg Autry teaches Macro Economics at the Merage School of Business, UC Irvine and is the co-author, with Peter Navarro, of Death by China. He holds a MBA from UCI and is completing a Management PhD in the area of public policy and economics. More info can be found at