China to face U.S. tariffs unless it devalues currency

[lovuian]

http://feeds.bignewsnetwork.com/?sid=e044d4c2dc02f949

Big News Network.com Friday 8th April, 2005

Anger over the ballooning trade deficit with China appears to be pushing the U.S. Senate toward passage of an overtly protective tariff.

An apparently increasing number of senators, significantly including Republicans, now see Beijing's suppression of its currency's value as a strategic obstacle to curbing a trade deficit that reached $8.43 billion in the first quarter, the Financial Times said Friday.

Senators will vote no later than July on legislation that would give China six months to revalue its renminbi or face a 27.5 percent tariff on all its imports. An effort to kill the legislation failed Wednesday on a 67-33 vote.

more...

Well its looking like the Corporations are starting to see an awakening dragon and its not easily pushed around!!!

[Maple]

1. I read an item the other day

China says U.S. should fix its own economic problems, stop blaming others

By STEPHANIE HOO | Associated Press
April 7, 2005

BEIJING - Bristling at U.S. criticism of its tight currency controls, China said Thursday that Washington should instead improve its own financial discipline to ease its ballooning trade deficit.

Instead of casting blame elsewhere, "the United States should find reasons from its own country to address the economic imbalance," said Foreign Ministry spokesman Qin Gang, at a regular news briefing.


http://www.freenewmexican.com/news/12343.html

Should be interesting to see how this works out.

[saigon68]

2. Never happen

Walmart is too powerful. They sell all that Chinese crap at a stunning Markup.


The Walton Criminals will never stand for a tariff.

It eats into their bottom line.

[googly]

3. Huge trade deficits with any country are BAD BAD BAD for us.

They get control of our treasury and we are at their mercy.
Not only that but jobs are exported while goods are imported.
Dumb, Dumb, Dumb.

[punpirate]

4. Seems to me to be a high degree of...

... silliness, for one reason only. China has been admitted to the WTO, with the blessings of the US, and it would very likely take such exclusionary tariffs to a WTO tribunal and win.

If Congress really wanted to fix the problem of Chinese imports, they'd not be providing so many incentives in the way of tax credits and subsidies to American businesses to move offshore, and would be putting that money and more into programs building industrial jobs in the US.

This is truly a problem of American businesses wanting to have their cake and eat it, too. The dollar is in crappy shape, in large part due to the horrors of the American debt situation, and allowing the renminbi to float against the dollar would simply require the Chinese to buy more American debt to keep the exchange rate comfortable for Chinese products here, in much the same way as the Japanese have done for decades. The hope of American business here is, of course, to keep the ball rolling, short term. Long term, that ball is very near to rolling off the edge of the playing surface, and into the abyss.

[bullimiami]

5. once again. bush and the cons screw something up.

then they get pissed and arrogant when they are faced with the consequences.

[tabasco]

6. Hahahahahahaha - they think we can control China ....

when China holds so much of our debt. I almost hope they do piss off the Chinese and accelerate the downfall of the house of cards.

Somebody will get out a memo and this idea will go away.

[Dancing_Dave]

7. Well, so much for Globalization

The Bush Administration dug our grave, but that's not all..

[necso]

8. An appreciation of the Chinese currency

relative to the dollar will mean:
1) The price of Chinese goods will go up for those who pay in dollars.
2) The trade deficit (USA - China) will go up.
3) There might eventually be a dropoff in imports of Chinese goods (by count of, not dollar value of, these imports) and an increase in exports. But for the foreseeable future, the trade deficit will be higher, not lower. And it could be much higher. And, in any event, all that can be reasonably expected is that the growth rate of Chinese imports will go down, and even this only in the medium term.
4) The increased price of Chinese goods will be a burden for regular Americans (this reevaluation does little to offset the tremendous relative advantages of Chinese economies of scale, massive wage-slave labor pool, lax regulations, new infrastructure, etc), but the elite will prosper as there will be a larger dollar flow on the same amount of goods for them to take their cut of. This is essentially another (hidden) tax increase on average citizens and another rebate for the elite.
5) Speculators who have been gambling on the Chinese currency (or have assets valued therein) will receive a tremendous windfall. (These speculators also want another 20% on the Euro (and more generally in the currency markets) as the 50% (or so) that they have gotten so far just isn't enough for them.)
6) Since this proposed currency reevaluation is essentially being held up as the equivalent (oh, those powerful implied analogies) of a tariff (in this bill), it will be made to seem (to the ignorant) that these two are the same -- and that a vote for this bill is a vote against Chinese imports. Of course, a tariff means more dollars going to our government (the tariffs) and a currency reevaluation (appreciation of the Chinese currency) means more dollars going to China. But what these two things do share in common is that they will both hurt ordinary citizens and profit the elite (markups are applied after things like tariffs).
7) It will be easier for the Chinese to buy our debt -- and anything else valued in dollars -- like those pathetic pretenses for "American" companies.
8) The inflation rate will increase, disproportionately harming average citizens.

In short, this (forcing the Chinese to appreciate their currency) is a miserable plan, which will hurt Americans generally while benefitting the manipulators who are behind this nonsense. But unless the American people can see through this farce (the tariffs would never hold up -- unless we trash the whole "free trade" bs (which the corporations and their neocon henchmen will never let happen, not as long as they hold power) and there will be retaliation against our exports along with trade partner/organization enforced penalties and sanctions that will more than offset any gains made through tariffs), then the neocons will use this piece of political whoring to maintain the pretense that they care about the welfare of this country and its people, while actually screwing us blind and selling out our birthrights.

When the defecation hits the rotating blades, I do hope that the people will remember who was responsible.

But I ain't countin' on it... I sure ain't countin' on it.

[mom cat]

10. Excellent synopsis! Could you develop this as an article for DU for

the front page? Thanks for the insightful analysis.

[necso]

11. No.

Not my thing. Sorry.

[necso]

12. The old master

(Adam Smith, "The (Sometimes Fleeting) Wealth of Nations") said (in paraphrase) that the highest rates of return are to be had in those countries that are headed fastest to ruin.

But one must look deeper into the master's words to realize the full implications of this statement. One such implication is that the areas of the economy that are leading us the fastest to ruin are those with the highest rates of return. (Or more properly "include those" -- as some of these areas of high return might actually represent good things happening in the economy -- although this is rather less likely to be the case. One reason that this is true is that it is almost always more profitable in the short term to sell the future than it is to apply resources to build it. And, in the case of America, why invest (actually build the economy, not just speculate in it) in something that is clearly going downhill, particularly when such seemly attractive alternatives are available.)

And when one considers the political reality that those in charge of our government serve the speculators, who demand the highest possible short term profits (consequences be damned), one can expect to see this economic (and political) objective behind the political maneuvering.

This particular farce serves as a good example. Of course, the proponents will argue the long term -- but they will also be looking for those same short term profits in the long term (and the medium term).

[oblivious]

9. I think you need to change your title. 'Revalue', not 'devalue'.

The US will take a royal crap if China "devalues" its currency.

[AngryAmish]

21. If any craps are taken, they will be craps of joy

Yuan is artificially high, held there by internal forces in China. If the dollar sinks, this is good news for the US.

[robcon]

22. Huh? Artificially high???????

AngryAmish wrote: "Yuan is artificially high, held there by internal forces in China. If the dollar sinks, this is good news for the US."

The yuan is artificially low. A country with a chronic surplus can only keep their currency low (to keep its prices low/exports high) by not converting its currency. China must keep, for example, a lot of the dollars it receives for its exports, and not convert them into yuan.

If the yuan was artificially high, the prices of Chinese goods would be high, not low.

[AngryAmish]

25. yep, my bad

[0rganism]

13. I wonder what the WTO will have to say about this

Very interesting.

Will the USA outright accuse the Chinese of "dumping" finished goods?

Denial is a powerful strong drug, and the USA is dangerously close to an overdose right about now. The re-valuation of American wealth will make for some interesting times to come.

[truthisfreedom]

14. bushco doesn't give a crap if they run the US into the ground. they're

no different from identity thieves, and they're in it for what they can get while we suffer all of the penalties.

[teryang]

17. Exactly right

They need buyers of US debt and they don't care how they do it. China fits the bill. While financing the huge government deficit they are also draining our economy of jobs and destroying our standard of living with labor arbitrage. This combination of outsourcing, deficit spending, and anti-labor policies is the corporatist policy agenda. Depressing the domestic job market with lousy service jobs and Walmarts filled with Chinese goods serve to disguise the explosive inflation underway, to some extent and only temporarily. The ranks of the underclass swell daily providing a cheap and expendable labor market.

But this regime which took and held power by means of two coups and a planned terrorism event, is involved in a desparate juggling act and could care less. Economists, except for the worst sychophants like Greenspan, almost universally agree that the economic fabric of the nation is being plundered and sold off.

[shadowknows69]

15. well, they created it

they shouldn't be suprised when it burns em.

[ckramer]

16. I think the deficit is caused by the Iraq war and the ripple effect of

Iraq war, the Congress is barking the wrong tree!

[Wright Patman]

18. China's trade surplus with the U.S.

in 2004 was $162 billion.

If China only had an $8.43 billion surplus over the first three months of 2005, the problem has practically already been solved as that would translate to a 2005 deficit of only $33 billion, which would be an 80 percent improvemnt toward balance.

That $8.43 billion figure quoted has to be a miscalculation of colossal proportions. The only way to explain it would be if that is the surplus China is running with the EU.

[paulk]

19. a Democrat, Charles Schumer, introduced the legislation mentioned

in the article. The Bush administration opposes it - which is why the article also mentions that the bill is gaining Republican support in the Senate. This support is against the will of the White House.

There is a lot of pressure on the White House to name China as a currency manipulater - (which they are - the yuan is artificially overvalued) - so far the Bush Administration has resisted.

I mention this because, judging from the replies to this thread, many here have not even read the article.

[robcon]

24. The yuan is not "artificially overvalued."

The yuan is artificially undervalued - making Chinese exports cheap. The dollar is overvalued (relative to the yuan.)

The Chinese are doing what the British did (to their ruin) from WWII to the 1970's - devaluing their currency to try to be more competitive.

[paulk]

28. that's not how I understand it

http://economics.about.com/cs/analysis/a/trade_china.htm

The exchange rates given at the bottom of this article are not a mistake. The Chinese Government has fixed the value of the Yuan such that 1 U.S. Dollar is worth 8.28 Yuan on foreign exchange markets. This is caused concern in Washington, as an artificially overvalyued Yuan keeps Chinese imports into the United States artificially inexpensive. This helps explain the massive increase in the U.S. trade deficit with China, as the size of that deficit has doubled in the last 22 months. The Association for Asian Research has some interesting background material on why the yuan is overvalued and the stresses this is causing to the Chinese Economy. Their article "Chinese Yuan should be devalued: Inflation an indicator of false prosperity" is a must read for anyone interested in the issue.

The refusal of the Chinese government to have a market-determined exchange rate seems to be causing an increase in the U.S. trade deficit. Not surprisingly, the Chinese Government does not see it that way, as reported by the Xinhua News Agency:

China's Minister in charge of the State Development and Reform Commission, Ma Kai, described the imbalance as structural in nature that reflects the changing commerce pattern and a high degree of complementarity between the two countries. China's currency exchange rate was not to blame for the US trade deficit, he said.
He challenged the assumption that revaluation of the Chinese currency will help narrow the US trade deficit with China. Noting that the United States has either stopped or substantially reduced the production of the type of goods now imported from China, he said the United States would have to import these goods from other countries even if it cuts down on its imports from China.

American-Chinese Trade and Exchange Data

DATE CHN YUAN CHN DEF
Jan-02 8.28 -6846.10
Feb-02 8.28 -6491.30
Mar-02 8.28 -5638.50
Apr-02 8.28 -7553.10
May-02 8.28 -8073.00
Jun-02 8.28 -8521.30
Jul-02 8.28 -9365.20
Aug-02 8.28 -10831.60
Sep-02 8.28 -10267.80
Oct-02 8.28 -9492.30
Nov-02 8.28 -10408.80
Dec-02 8.28 -9575.90
Jan-03 8.28 -9421.30
Feb-03 8.28 -7579.40
Mar-03 8.28 -7669.60
Apr-03 8.28 -9451.40
May-03 8.28 -9861.90
Jun-03 8.28 -9989.50
Jul-03 8.28 -11338.50
Aug-03 8.28 -11699.00
Sep-03 8.28 -12691.80
Oct-03 8.28 -13565.50


On the other hand, it's hard to find two economists who agree, so my understanding perhaps is flawed.

And I freely admit to not being an economist.

[4dsc]

20. What to do!!

http://mindprod.com/wto.html

Thom Hartmann has a few idea about trade!!

What To Do

There can be no effective control of corporations while their political activity remains.
~ Theodore Roosevelt

What are the solutions:

* Put more political power into the WTO to counterbalance the power of the multinationals.

* Withdraw from the WTO. This is not likely to happen as long as politicians get their primary source of campaign contributions from multinational corporations.

* Campaign finance reform to reduce the power of the corporations.

The alternative is a world that cares nothing about people or life, just the bottom line of faceless corporations willing to take any measure to squeeze another penny without concern for the consequences to human life or the environment.

[mumon]

23. This is so profoundly stupid on so many levels

I can't believe I have to agree with the clowns from Bushco but (see http://mumonno.blogspot.com/2005/04/meanwhile-international-money-mind-has.html)
on this one they have it right.

I really mean it.

This could cause a world-wide collapse of the economy.

[southernboy]

26. All gov'ts have wanted to spend as much money as possible

All have succumbed to deficit spending.

They all failed, and in the end the governments ultimately
turned to robbing somebody.

There is an end to how much debt you can owe someone.

[lovuian]

27. I think Bush is powerless here and the US & China knows it

Its gotta hurt the Republicans that they don't have control of China!!!

[Mugweed]

29. The solution

We can just "revalue" the American dollar to be worth more than anything else existing. I mean if our moranic gummint thinks the solution is for China to just "revalue" renminbi at the drop of a hat, then it stands to reason that our glorious leaders can do the same for our currency in the opposite direction and we can all pretend we're on top again. Hurray!

[mbperrin]

30. Thank you! "Official rates" are just that -

official, as opposed to real. Because the stated rate cannot change, the actual rate must be reflected in other ways - in this case, low prices of Chinese goods shipped into the US. If the Chinese were to simply raise their prices, classic theory would have it that our own domestic output would be more desirable to us then, and we would buy more made here, rather than there.

Problem? WE NO LONGER MAKE MOST OF THAT STUFF HERE. So we either just pay more for Chinese stuff, or pay more for somebody else's stuff; in which case, I'd look to see which countries Carlyle owns businesses in which are not as competitive in the US as China is. Apparently, the Carlyle folks don't own as much Chinese as other stuff.

Base problem? We passed tax INCENTIVES to get companies to leave the country. We should have assessed them the amortized value of our societal infrastructure BEFORE they could leave. It's the same idea as preventing shoplifting - when companies take all the knowledge and expertise which was developed HERE. in conditions paid for by the folks HERE, then they need to pay their dues HERE, before being allowed to haul property, real and intellectual, elsewhere.

Oh, well, now I've done something silly, which is to assume that Congress, the White House or any other governmental organ gives a shit about anything other than CORPORATE MONEY.

Sorry. Won't happen again.

[Polemicist]

35. It's not present production that's the most problematic...

It's actually the nature of future Chinese production and exports that cause us the most potential problems here in America.

China is conquering manufacturing, category by category. The first categories, such as textiles, were industries America had actually already decided to abandon under NAFTA. A lot of the Chinese imports replaced Mexican imports and imports from other nations. We were just trading trade deficits with one nation for a trade deficit with another. The net harm to the USA was small. The same with consumer electronics, instead of importing from Korea or Japan, we imported from China at a lower cost, which helped consumers in the USA.

The problem is the future industrial categories China is entering. automobiles, appliances, chemicals, technology, machine tooling, etc. We have to address the structural imbalances in our trade with China now, before they decimate these American industries.

The Yuan is now artificially weak, pegged a just over 8 per dollar by Chinese government fiat. The Yuan isn't freely traded on international currency markets like other industrial, developed nations. That must change. This current US effort will still allow the Yuan to be pegged to the dollar, but will revalue it upward by some set percentage.

Several advantages occur if the Yuan is revalued and finally allowed to gain market equilibrium with the Dollar, Euro, Yen and other world currencies. First, American exports to China become more attractive. And these are in the higher cost categories I mentioned above. They will help reduce the growth of these industries in China, therefore the Chinese leadership resists this.

Secondly, some of the Chinese cost advantage will be lost. We must push for Chinese infrastructure changes in labor laws, environmental laws, minimum wages, intellectual laws, and political freedoms. We can't grant equal trade basis for non-democratic nations without our social values and infrastructure costs. We will be hammered by trading with slave labor exploiters.

Not to worry about the Chinese holding US Treasury Bonds. The risks to the holders are greater than the risk to the debtors. The Chinese aren't stupid. When someone owes you too much money, you no longer have a creditor/debtor relationship. You become partners of a sort, with shared interests. A floating currency will force the Chinese to continue to purchase US bonds if they want to manipulate currency markets as the Japanese do. The last thing the holder of a Trillion dollars worth of US Tbonds wants is a run on the US currency.

But ultimately, we must get our economic house in order. That requires political change and voting out the irresponsible Republicans who have harmed our economy so much. But I don't think that's news for anyone here.

[CHIMO]

31. Interesting

How would one handle this if they were China. I would think that they would move to use their foreign reserves to purchase hard assets such as commodities.
Then move to re-evaluate.

They would in a way have cushioned the resource side a bit. On the other side I would expect that resources as valued in other currencies would rise.

[w4rma]

32. Good. I'm sick of cheap Chinese crap underpricing American made

products. I'm sick of China buying up more and more of America by taking advantage of our trade deficit with them. Any tarriffs on China are a good thing.

[ckramer]

33. Is it not the capitalism way?

One(China) is willing to sell, the other one (US) is willing to buy, and buy a lot.

So the Congress is being anti-capitalism?

[w4rma]

34. Just "protectionist".

Not in any way, shape or form "anti-capitalist".