Is this more great sounding rhetoric or is Obama going to get serious about China and their currency manipulation?
The administration has told Chinese officials that currency policy will be high on its agenda this year for economic talks with China, a senior official said on Wednesday. The White House is also weighing whether to designate China as a country that manipulates its currency, when the Treasury Department issues its semiannual report on foreign currencies in April.
President Obama signaled the tougher line on Wednesday, telling Democratic senators that the United States needed “to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage.”
An astounding 83% of the non-oil trade deficit can be attributed to China and of that, estimates vary but a good figure is 45% percent of that trade deficit could vanish by simply getting China to stop their currency manipulation.
China really is advancing at the sacrifice of the U.S. economy. Read China, the ultimate protectionist for some eye popping statistics.
We have heard some opening salvos from the Obama administration on China's currency manipulation previously (I think about the only thing Geithner has said that made sense actually).
We suggested doing this as part of the Jobs Stimulus action item list.
Frankly, China is one hell of a tiger, so I hope this isn't just a little more huff and puff and this government gets it together to mean it this time. Jobs are on the line and if anyone didn't notice....those green jobs...uh, they are being created in China and lest we not forget, China has been busy cornering the oil market.
I apologize in advance for this post title
I thought of deleting it, but hey, all of you Congressional staffers and other politicians if you are reading this site...
we REALLY want you to move on policy that is going to create a butt load of jobs...
I'm sorry if this is disrespectful but we really want you to move and do something and put all of the U.S. might and power behind some moves for the U.S. middle class.
I don't think China can do it
The life (I mean not losing their heads type life) of the ruling class depends on it. They have to protect their export driven economy as best they can. They may appreciate it a little but I doubt if they ever would let it float - it would destabilize the country IMO.
Our biggest mistake was thinking that an authoritarian government like China would be a fair "partner" in trade. But that didn't matter to MNCs - they got what they wanted - exploitation of cheap labor and cheap resources and ruling class got what it wanted - jobs. The plan was working out great for MNCs - margins increasing - supply of cheap imports to keep Americans happy but the bottom fell out. The "house of cards" collapsed when the limits to growth via consumer debt and mortgage debt kicked in. I digress.
Bottomline: as a matter of survival of ruling class in China we will never see the China float its currency. Workers in China would not handle high unemployment too well.
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Probably not
It's costing us millions of jobs and trillions of dollars, but the politicians seem to be as much captured by China's peg as by Wall Street's bribes.
China: "Forget about it!"
I’m only a sometimes reader of this blog. But, it seems that every time I do, there is something about China’s exchange rate and how that’s ‘costing American jobs’ but no specific scenarios. Perhaps I missed those articles and comments.
Specifically, what happens to the cost of China’s good sold at WalMarts. It seems that currency exchange rates affect those prices. So if the rate changes I assume that that there is a corresponding change in cost of goods purchased by a large number of Americans in the ‘struggling class’. Being “Populous’ I assume that you don’t want to put a burden on them.
And, what jobs will be created? Where will the ‘struggling class’ get jobs. Kodak and Xerox are big employers in my hometown will they be hiring if the exchange rate changes? The GM plants are long gone will they be coming back if the exchange rate is changed?
These are not rhetorical questions! Again, I would be interested in some specific ‘probability’ based predictions of how the struggling class will be affected if “Obama grows a pair”
Also, we will see soon if he does. Today’s NY Times reports that a China official on the record said: “forget about it”. So now what is your specific advice and on what should be done that will not increase the burden on the struggling class and indeed help them.
China uses a targeted range for currency
The Renminbi is intentionally kept weak (particularly versus the dollar) by the Chinese government through various capital controls and interventions. They do this to protect their largely export driven economy.
The effect of keeping Renminbi lower versus dollar is that it makes Chinese exported goods cheaper worldwide but it also makes imported goods to China more expensive. This makes it very difficult for manufacturing companies in U.S. and abroad to compete with Chinese companies.
Take steel. San Francisco Bay Bridge is being rebuilt with Chinese steel not American. Why? Because its cheaper to import than U.S. steel (cheaper in terms of quality as well - IMHO). But this isn't good for American workers who are either idle or permanently unemployed.
As for cheap imports we get from big box store chains, yes, it helps but that as we found out has limits. Our willingness to allow China to fix the trade system in its favor is based on the idea of competition from overseas keeps labor costs low in U.S. - this translates into wage stagnation. What replaced wage growth was cheap imports and when price of cheap imports continued to increase (because big box store chains need to increase margins) what made up the difference - more consumer debt (NOT wage growth).
Prof. Krugman did a back of the envelope calculation that the effects of Chinese monetary policy has cost 1.4 million jobs.
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China economics on an envelope
Thank you for your polite response. I appreciate not being called “ridiculous”. However the problem with ‘back of the envelope” calculations is that you can’t get to much data on to the envelope (pun). At best one can come up with is anecdotes that ‘make sense’ but don't have generality.
So the cost of steel goes up and that’s good for steel workers. But, I’m a taxpayer and I have to pay for that steel so given the reality of today’s economy that does not sound so good. Also, I shop at ‘big boxes’ and unemployed so the cost of goods sold going up does not sound so good to me. But you say I will get a job if my taxes go up and my food and clothing cost go up which I buy from Wal-Mart.
So you’ve got your anecdote and I’ve go mine and you have the ‘mistakes’ as you see them with China policy historically which may be true I don’t know. But, you still have not come up with any generalized description of how the economy is going to change NOW for virtually everyone’ s benefit. If the exchange rate changes say 25% what is going to happen in terms of specific industries – who specifically will be affected both plus and minus. We can talk about what if we had done things differently but we are here and now.
Also, what about China’s argument in today’s Times that the problem is not exchange rates but the US deficits? Is that specious? Does printing dollars affect the value of dollars in other currencies?
I know this is a lot to get on an envelope (pun). But, I really think we (all us – nothing personal here) have to get beyond political and ideological clichés and anecdotes and get very specific about what actions to take and what specifically we expect to happen. Specific in terms of industries, taxes, cost of living…etc.
not back of the envelope
Look, I've seen you post over and over again when China comes up on EP and I note, never do you have any broad statistics to refute the many stats, graphs, numbers, that are covered.
Now I linked to a major yearly report for the U.S.-China commission that is over 200 pages, which I overview. The statistics in that document make it quite clear China and their currency manipulation is hurting the U.S. economically and the middle class.
Trying to spin data you do not like as "ideological" is really calling the kettle black.
No, "printing dollars" per say does not devalue the currency because it's all about money velocity. What can and is a current problem is the carry trade, which we also have written about. Cheap money is borrowed into the U.S. and instead of invested in the U.S., is invested in EEs (emerging economies, China is classified as one, Brazil, India are the two other big ones), for a higher rate of return.
Where you are associating tax policy with China currency manipulation is beyond me. Has nothing to do with it.
Your costs might go up for a good but odds are not so much. You are missing the entire global supply chain costs, so if those manufactured goods are purchased from other suppliers, hopefully U.S. suppliers, that does not necessarily mean the costs go up.
And yes, that means you have a job. Manufacturing has shrank from ~15% to about 11% of GDP, service sector jobs have gone overseas and the real economic multiplier is high end jobs generate a good 15 additional jobs around them.
The reason China harps on the deficit/debt is because they own the most U.S. Treasuries AND they also own a huge percentage of GSE MBSes and related derivatives.
Therefore....if their currency is floated, their initial investment will dramatically decrease...
and their built in trade manipulations also go away. They have a 1.4 billion population, a massive workforce which is why they must have such absurd GDP numbers to employ all of those people....but the other reality is...if China developed it's own consumer economy and transition was gradual...they would be just fine and the U.S. sure would be way better off.
and of course you're missing an even bigger picture....the future of the U.S. is being offshore outsourced to China. That's advanced R&D, China is out (with dumping practices again) to dominate all alternative energy technologies AND China is also busy cornering the world's oil market.
Where to start
Robert is right the data is there. I used Prof. Krugman as a quick reference. "Free trade" (oxymoron) has shown to NOT help everybody as it was sold to us.
First, China is not playing by the rules with targeting currency lower. Second, that HUGE thing aside, you are highly mistaken if you believe as taxpayers you are saving money by buying cheaper steel from China vs. US. There are opportunity costs and social costs (unemployment insurance) that go along with buying that cheaper steel from China vs. US that are NOT built into actual price. So don't think you are saving money as taxpayer by buying cheaper (IMHO inferior) steel.
Third, I never said anything about taxes going up and jobs. Your living costs are going up regardless of taxes, or the fact you shop at 'big box' store. But the major problem is that wage growth is stagnate. It is no longer true that the harder you work the more money you make - that idea was destroyed by Reaganomics (oops). So, what is replacing wage growth to support a certain standard of living is MORE DEBT.
We have no control over what China does or doesn't do with its currency. The point of the post is that it is NOT 'Free trade'. As for specifics you can search this site and others. I am certainly not going recite specifics in a comment.
China's deficit argument is trying to distract from what the rest of world is saying about it monetary policy.
Our mistake was years ago to think we would have "free trade" with an authoritarian government such as China.
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read the links
Yes, a good section of lost manufacturing would probably return to the U.S. The reason is a floating Yuan would no longer enable the cost advantages and more importantly, the carry trade capital game, i.e. investing in only EEs at the costs of 1st world economies, would not pay out like it has.
Firstly, I think you need to read the many links. I've written up many details on China, with statistics and graphs, repeatedly. This is an Instapopulist, which is more of an update. this one and use Google site specific search. I'm not going to pull up every detailed post on trade and China and currency's on EP, it must be over 100.
It is estimated to improve U.S. jobs, manufacturing ~45%.
So, trying to somehow claim cheap Wal-mart is good for America is absolutely ridiculous, as evidenced by the declining U.S. middle class jobs, income, wealth...
somehow I do not believe a few cheap plastic items makes up for that.
As far as "Populist" struggling masses crap,you are clearly not reading this site. It's about overall trade deficits, improving U.S. manufacturing sector as ratio to GDP, increasing U.S. ave. wage/income...
A host of EIs that I've written about many times over.