Congress may be poised to pass legislation to penalize China unless its government stops manipulating its exchange rate and plays by the agreed-upon rules of international trade. This currency manipulation -- which makes U.S. exports more expensive in China and Chinese imports artificially cheaper in our stores -- has helped to inflate dangerous global trade imbalances that have dampened economic growth in the U.S. and around the world.
There is really no disputing the truth that China manipulates its exchange rate, or that this manipulation causes market distortions. It is a set of facts on which a broad base of economists agree -- including staunch free traders like Nobel laureate Paul Krugman.
So it is extraordinary to see just how fast some multinational companies, Wall Street-oriented politicians in both parties, and a few head-in-the-sand free market economists can jump into bed with Beijing's communist government and defend its exchange rate manipulation. Remember, China rules through an authoritarian government and practices the antithesis of free market economics. The Chinese engage in a particularly toxic brand of protectionism and mercantilism, one that not only has cost the U.S. millions of good manufacturing jobs, but one that also hurts the competitiveness of other developing industrial economies.
Amazingly, some of these staunch free marketers and conservatives accuse us of "China bashing," as if it were somehow our fault that China manipulates its currency. That's like blaming the victim of a crime for being in the wrong place at the wrong time. Put the blame where it belongs: with China, for its action, and with Congress and the administration, for their inaction.
Anyone who has studied the godfather of free trade, Adam Smith, or President Ronald Reagan's policies knows that if either of these men were alive today, they would be supporting our efforts to stop China's currency manipulation, through countervailing measures if necessary.
So, three jeers for the new Neville Chamberlains: those multinational companies, misguided politicians, and ignorant pundits, who believe that appeasing the Chinese will bear fruit. The sad fact is that we have tried the Chinese economic appeasement strategy for a decade, and it has failed. Confronting China on currency is not protectionist because it would serve to restore the free market; does not invite retaliation because China cannot replace America's consumer market with domestic consumption; and has historically proven to be effective -- as suggested by the past actions of Nixon, Reagan, and Schumer-Graham to move exchange rates.
Some of the less informed defenders of China's government may argue that we can't act because China owns the United States. The fact is that China is able to buy and accumulate U.S. debt precisely because it wants to maintain a peg to our currency. We do not need or want China to buy our debt -- there is plenty of global and domestic demand for that -- but China does need to sell its product in our market. That gives us tremendous leverage, if we are willing to use it.
Passing the Schumer-Graham bill in the Senate and Ryan-Murphy bill in the House would be two small steps in the larger effort that will be necessary to stop China's mercantilism and balance America's current account.
We need more leadership from the White House and Treasury, which have jawboned China's government, but have not laid out any consequences. The administration thought it scored a coup when China announced over the summer that it would allow the Yuan to float a bit more, but since that time, China has showed just how little it is willing to do unless it faces consequences for its cheating.
It would be sad to see the administration stand firmly with the appeasement crowd on China. Such inaction would put Obama on the wrong side of history, as it represents a victory for the state-run, authoritarian way of doing things over democratic, rules-based capitalism. On Obama's watch, China may well surpass America as the world's leading manufacturer next year, a title that America has held for over a century. Many Americans think we've already lost our lead. And millions of American manufacturing workers remain unemployed. I don't want that to be a legacy of this presidency. I doubt if any American does.
We cannot allow the Chinese to have their wish fulfilled: to make our demands for change disappear. Congress should pass strong legislation to level the playing field for America's workers and businesses. And they should do it now.
Follow Scott Paul on Twitter: www.twitter.com/ScottPaulAAM
Scott Paul: China's Currency Charade
Dave Johnson: China Currency Shift: Getting Worse More Slowly
Scott Paul: Killer Trade Deficits. Literally.
But the root cause remains, and it happened during the Clinton administration, if we engaged in "free trade" it would result in a sucking sound of jobs leaving the country.
http://www.youtube.com/watch?v=Rkgx1C_S6ls
Here,it's Nafta, but the same principle applies.
We're competing with 3rd world labor. Our politicians are bought off by trans-national corporations, so when we're subjected to this fake dichotomy, whether it's health care, where single payer is "off the table", or financial reform, where "too big to fail", meaning reinstatement of Glass-Steagall is "off the table" or where Americans should pay to be the world's policeman, proposals such as the Paul/Frank overseas base reduction is off the table, insofar as the 2010 elections is concerned, we really need to focus on the trans-national corporate influenced propaganda apparatus that manipulates elections these days.
China is eating our lunch due to economic nationalism. In other words, economic loyalty to their citizens. Meanwhile, over here, we have economic traitors running, that are beholden to trans-national corporations. They have employment security, as a "lobbyist" if they're out of office.
The fact is, our country won't be able to compete, if our politicians have no economic patriotism, while our competitor do.
everybody screams about currency manipulating without pausing for 1 sec and thinking about it.
currency manipulating is a crime?? give me a freaking break,
that's Federal Bank's JOB, in each and every country in this planet!
that's what tax payers pay them for, to determine currency values best for their national interests.
now we need to stop being so hypocritic about this currency thing instead of focusing on the real solution to our economic problem, anybody had taken Economics 101 knows even if China up its currency 30% overnight, it aint bringing 1 job back to this country.
Some inconvenient truths with regards to who is the currency manipulator:
1. The best method of setting a fair currency exchange rate is to tie the value of a currency to a commodity or a basket of commodities. This is also the least profitable solution for American Banksters.
2. We are the Debtor nation of the world. We took ourselves away from linking our currency a freely traded commodity (gold) when we devalued our currency and other countries began exchanging their dollars for gold.
3. Oddly, every country in the world is forced to buy the most essential controllable commodity only in U.S. dollars. That commodity is oil and that is an extraordinary point of manipulation. Oil is not allowed to be freely traded in all currencies. In other words every country needs to have an export imbalance with America in order to purchase their oil supply.
The Chinese brand of capitalism embraces the profit as an objective but not to the exclusion of the social concern of full employment. So while they subsidize full employment, we subsidize unemployment checks and encourage charity for the poor and jobless masses. I am not sure they do not have it right or that the best alternative isn't somewhere in between. As on a very basic level it just does not seem to make good sense to have a large percentage of your population sitting idle and just collecting handouts or suffering devastating poverty.
Europe had a brutal class based system, before it moved to colonial slave tribe based race system
China has avoided that.
I recently reread Rise to Rebellion by Jeff Shara. It really is the story of the creation of the middle class in America. Under British rule, artisans and guilds couldn't make and sell domestic goods. Instead, colonists were forced to buy imported products. The trade companies got rich. The colonists were poor. Our founders understood this was a kind of economic oppression that deprived colonists of the means to better themselves.
The tea party movement is wrong about the intentions of our forefathers and mothers. It wasn't about taxation as much as extending opportunity to all Americans.
http://www.whartonsp.com/articles/article.aspx?p=417513
Arbitrage, Hedging, and the Law of One Price
"Arbitrage is the process of buying assets in one market and selling them in another to profit from unjustifiable price differences. This violates the expectation that the same product should sell for the same price.
Arbitrage offers guaranteed profit with no risk, and therefore undermines the stability and functionality of markets. This chapter explains how these expectations and forces interact, and why arbitrage is such a dangerous thing...."
The U.S. will excperience Ricardo's Iron Law of Wages principle:
http://dictionary.reference.com/browse/iron+law+of+wages
Iron law of wages | Define Iron law of wages at Dictionary.com
"the doctrine or theory that wages tend toward a level sufficient only to maintain a subsistence standard of living. "
Unemployed people don't buy much.
If America wants more oomph, enter into a rare earths cartel with China and drive the prices up by 20 times. Japan, German and Korea will be most affected, but that's OK, since they are the REAL competitors for America's high tech manufacturing (China is decades away from competing in that sphere).
There have been more publications than not asserting that China is manipulating their currency; furthermore, it is also well documented that factory workers in China make pennies an hour and work. Many are children. Conditions are harsh. This exploitation is no different than 100 years ago in the USA. In the US, labor unions formed and improved working conditions and compensation. This too will happen in China and their so-called comparative advantage will disappear.
Didn't everyone just decide that it was the environment that would doom us all? Or, was it the lack of labor rights? Um, human rights? Er, military build-up?
They can't all be THE reason.
Moreover, the REDUCTION in demand due to higher prices most likely led to a REDUCTION in retail employment, in greater numbers than the measly couple hundred tire making jobs "created." Americans, especially working class Americans, SUFFER all around due to protectionism.
Yet these clowns who obviously do not often buy from Walmart, now preach MORE of such atrocity, so that every one of the 300,000,000 American consumers will have the pleasure of paying through the nose for suit the fancy of these protectionists.
Where is common sense to be found anymore? In these hard times folks need HIGHER PRICES like they need the PLAGUE.
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.
On the other hand, cumulated Chinese direct investments in the U.S., due to the hostility shown by the American Congress, has been only US$3.1 Billion by June 2009.
The $80 Billion in American profits from China is MANY TIMES that of the profits on China's exports to America ($300 Billion, with profits averaging 1-5%). Protectionism will just jeopardize Americans' ability to make profits from China. It will also kill the fastest growing export market (China) for American exporters.
What is the evidence? Without China, America's economy would not have grown the way it did in the past 20 years (at least up till 2008 debacle caused by American banksters' fraud). For all of that 20 years or more, China supplied the world (and America) with well priced goods, holding down inflation to almost nothing. Moreover, China recycled most of those trade dollars (which cannot be spent in China anyway) into really low return investments into U.S. Treasuries and GSEs, thereby providing the American economy with low cost financing. Most American assets went up steadily in price during that entire generation (20 years!!) as a result. Almost everyone had extra money to spend. Unemployment was not a problem at all. It was 20 years of golden age, the good life, and China a big benefactor to Americans.
It was never China's fault that the Beltway pols squandered that largesse and failed to lead the nation to the post industrial economy, and wasted TRILLIONS on the banksters even after their fraud "hit the fan" in 2008, destroying 8 million American jobs in the process.
China bashing may be politically expedient, especially to the clown-demagogues in Washington who "enjoy" low 2-digit approval ratings. But it will only do serious harm to America, as I will further explain.
Say NO to protectionism.
http://insider.thomsonreuters.com/link.html?ctype=group_channel&chid=3&cid=143492&shareToken=MzpmNDRmYjZjOS01NGIyLTQwMjItODk4Mi04OTM4M2ZlNTUxNDk%3D%0A
In comparison to the other major markets, China is one of the most open. HOW many American made cars are sold in Japan, Korea, or Germany? How many in China? China today is the MOST PROFITABLE market for the American auto makers, GE, BOEING, and a long list of other American companies - these profits total more than US$80 BILLION a year (and that's only the REPORTED profits, with much of extra profits hidden through transfer pricing).
The problem with exports to China is mostly limited only by what America (Washington) decides to RESTRICT. If Washington just modifies that export control list to allow American companies to sell what is freely available on the international market (therefore not implicating security issues), America would get back to being No. 1 (it is currently No. 3) as an export nation.
Policies ARE important, but protectionism clearly is detrimental to American interests.