The House of Representatives has passed a bill aimed at curbing China's ongoing currency manipulation. Some critics argue that this legislation to address China's continued undervaluation would be "protectionist," but this makes no sense. If someone cheats in a game, you call them on it. You demand that they play by the same rules.
Global trade should be no different. And with the U.S. continually racking up $200+ billion annual trade deficits with China, and losing millions of jobs along the wayt, action must be taken.
With that said, let's look at five key reasons why penalizing China for its cheating makes sense:
1. What would Ronald Reagan do? He would have said to the Chinese: appreciate the Yuan, stop the subsidies, or lose access to our market. Period. The current bill, H.R.2378, is mild compared to what President Reagan would have done. And it's because the Chinese are distorting the free market, not honoring it. It's always taken American leadership to right this wrong. Really the only times we've seen stability in manufacturing employment AND a balanced current account were immediately after the U.S. compelled revaluations (Nixon in 1971, Reagan in 1985-1987).
2. Trade War?A trade war never materialized after Buy America provisions in the stimulus. It never materialized after Obama's tariffs on Chinese tires. And it won't materialize now. That's because we have the leverage--not the Chinese. We can find replacements for China's debt financing, but they cannot find a replacement for the American consumer market.
3. Will the Chinese drop their American debt? Not likely. If they do, we can simply reschedule it. Period. Frankly, we don't WANT the Chinese to finance our debt, because it's like a big Ponzi scheme. We outsource production, then borrow from the Chinese to buy made in China products. They accumulate a trade surplus. We lose jobs and accumulate trade debt. Compelling a revaluation of the Yuan is the first step in stopping that bad habit. And, there are plenty of other buyers for U.S. debt.
4. Irresponsible Congress? Not in the least. This action will strengthen the Administration's hand in dealing with the Chinese. And, if the bill becomes law, it provides American industry with a "trade-legal" way to seek relief from competition that is subsidized by currency manipulation.
5. Will this be effective? Absolutely. It will put downward pressure on our overall trade deficit, because we compete in a lot of third markets with the Chinese. And, it will reduce harmful imbalances. Exchange rates are not the silver bullet, but getting them right is a prerequisite for progress on other issues.
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Before speculating on "what Reagan would do" re China, conduct some research to find out facts behind false legacy of Reagan Presidency, perpetrated through extraordinarily successful history revisionism by conservatives. Start by reading David Stockman, Reagan's budget director,1981-1985, in NY Times, July 2010, "Four Deformations of the Apocalypse"; "Presidents and Prosperity" by Dan Ackman, July 2004, Forbes; "The Sad Legacy of Ronald Reagan" by Sheldon L. Richman (editor of The Freeman), October 1988, The Free Enterprise; and "Reagan's Liberal Legacy" by Joshua Green, January/February 2003, Washington Monthly. Pulitzer Prize-winning author Will Bunch, in Tear Down This Myth, Simon Schuster/Free Press, 2009, explains how in 1997, Grover Norquist undertook campaign to reinvent presidency of Ronald Reagan by attributing false triumphs, especially economic, and discounting any failures, scandals, and poor results that would otherwise relegate Reagan to unremarkable, non-transformational figure. Look at various presidential rankings assigned Reagan since he left office compared to present-day. He consistently ranked Average or around 18th until recently when center-right C-SPAN, buying into upgrade in stature, ranked him 10th. His conservative rhetoric did not match policies he practiced. Tax cuts had to be offset by several tax increases. He did not achieve unusual economic prosperity. He averaged 3.5 in GDP--same as Clinton. "Reaganomics" was never effected. In writing hagiographies, Buckley, Noonan, and other well-respected conservatives were complicit in glorifying Reagan. Most duped group has been liberal press.
"Yes there is nothing at all free about "free" trade
lets look at the costs - that as you say don't show up on the price tag of cheap imported goods
Increase energy demand
accellerated environmental degradation
incresed disparity of wealth
loss of national sovereignity
weakened national security
loss of productive capacity
increased debt and deficit
labor exploitation
decreased consumer choice
stagnant wages
decreased product quality and safety
IP theft
loss of technological and innoavtive advantage
and more
Reagan would have done whatever he was told. Just like our current crop of politicians, he would have done whatever Big Business told him to do.
usa attempts at protectionism should begin with restricting usa companies from reimporting products made in china(or anywhere else) first before imposing tariffs and trade restrictions on real foreign companies. maybe then manufacturing might be revived in the usa along with the job market.
Well that's not at all what the Ron did. Back then our trade deficit was with Japan. The Ron did nothing but encourage it. Within a week after leaving office he went to Japan to receive his $1,000,000 personal payoff from the Japanese in the form of a "speaking fee". That's the real history.
"Will this be effective?"
Absolutely not. China could raise their currency 1000% and it would not make a difference in our trade deficit, the manufacturing would just move to Ethiopia, etc.
The fact is, Japan and Germany have massive trade surpluses with China. Why do we have a deficit while they have a surplus? Our dollar is too high. If our dollar goes down our trade balances and Ethiopia doesn't get the jobs - we do.
0.05%? 0.1%?
Most of the electronic stuff are paid for - MPEG, DVD6 and DVD3, and now the Blu-ray consortia see to that. What else is protectable?
Also you should think clearly what you want, as China is also developing its own IP portfolios. There must be hundreds of thousands of copyrightable graphics and designs in just pots and pans and houseware and Christmas ornaments, etc., that the Chinese create each and every year. If they get organized and start enforcing those, the profits and prices of goods are going to RISE, and the likes of Walmart cannot press for always the lowest prices anymore. IP can definitely be a 2-edged sword.
BTW, what DOES America do to protect foreign companies from IP infringement in the U.S.? Anything?
No trade war erupted after the tire tariffs, and Scott Paul is gleefully celebrating??!! What happened after the 35% tariffs were imposed on Made in China tires in 2009? Did jobs return to America? NO. Dept. of Labor stats showed that for the first 6 months of 2010, tire manufacturing labor jobs DROPPED 10% year on year. Worse yet, tire prices immediately jumped on the tariffed tires by over 25%, and for all tires an average of 10-20%. The increased prices killed demand, and there were more loss of retail jobs too. Working class Americans lost every which way when the protectionists win - fewer jobs, higher prices, all thanks to trade protectionism.
It is despicable behavior is to hurt the neighbor while NOT benefiting yourself, after China acted as America's benefactor for over 20 years, holding down inflation and loaning back the trade dollars to Americans at dirt cheap rates.
Trade with China was the most effective poverty alleviation program in America in the last 20 years - even the less fortunate than Mr. Paul could afford to buy more. They can no longer do so thanks to Mr. Paul and others like him.
Increasing employment does far more to alleviate poverty than importing cheap products
Hundreds of US tire jobs have been spared, tire plant closures have been cancelled and postponed. Good year has recenlty invested millions in updating facitlities in equipment they themselves admit they couldn't have done with trade action
assertions of major increases in prices are just scare tactics by the china apologists, not gonna happen. The US did just fine before the era of "free" trade
Besides, who are you to impose your fundamentalist ideology on the 300,000,000 American consumers, who vote with their wallets everyday, and buy almost a billion dollars of affordable, well made goods from China EACH DAY?
The economy is still sitting on a precipice. The most telling number is that manufacturing is running at 70% of capacity - AND that is with inventory rebuilding accounting for 1.5% of the anemic 3% "expansion" - and that is totally unsustainable. Most of the goods that China export to America are not even made in the U.S. anymore. Who is going to be investing in new plants in this climate?
The real danger is that protectionism will push the nation into a depression so deep that housing prices will drop yet another 30-40% from today's levels, and it will take America 20 years to recover.
The LAST THING that Americans need today is higher prices. If you are going to play protectionist god and argue for union jobs, at least wait till the nation has recovered!! Protectionism is PROVEN to kill jobs and raise prices every time. Even Prez. Reagan knew that and he cut tariffs, not increase them.
By the way the we that most benefited from this arrangement were the Rich. Not the average Americans and certainly not the average Chinese.
*Devaluing the dollar made U.S. exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services.
The Plaza Accord was successful in reducing the U.S. trade deficit with Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan because this deficit was due to structural rather than monetary conditions.
The Manufactured goods of the United States became more competitive in the exports market but were still largely unable to succeed in the Japanese domestic market due to Japan's structural restrictions on imports.*
hmmm, so I guess this tactic wouldn't work with China since they already have import tariffs in place...