Chinese Consumers Thank the US Senate
From my Forbes post today, the following letter:
From: The Consumers and Small Businesses of China
To: The United States Senate
Re: Currency Exchange Rate Oversight Reform Act of 2011
Dear Senators:
Thanks! For years, our government has pursued a currency and trade policy that has subsidized your American consumers at the expense of our own here in China, and while we are unsure exactly why you would want to end this arrangement (we presume due to powerful lobby by your large manufacturers), we are happy that you are doing so....
A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese. So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts. And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields and creating inflationary pressures.
Every single step China takes to promote exports is in effect a transfer of wealth from Chinese citizens to Americans, and we are tired of it.
Read it all.
TVH:
Warren,
This is one of your best. Excellent points and just the right note of sarcasm.
I'll be very interested to see the comments it generates here and on Forbes.
I've had the same thought for some years that the US (and Canada) were just waiting for sustained high oil prices and fears of Peak Oil before they chose to really start developing oil sands in Canada and Bakken oil in North Dakota and simliar fracking-accessible oil in other formations. It's certainly better to be the new king of the hill in oil (and gas), if that's where things go, when oil is expensive. Better to have "feasted" on cheap Middle Eastern Oil for decades, much like enjoying the benefits of cheap Chinese goods, and then enjoy the power and money our domestic oil brings when it is very expensive and we still have tons of it. I have wondered whether our oil companies and politicians, both Repub. and Dem., have actually been smart enough to restrict our onshore and offshore oil production precisely to save it for when we really need it. Oil companies--maybe. Politicians--hard to imagine...
Anyway, back to your thoughts on China--spot on!
October 6, 2011, 10:27 amMJ:
I have wondered whether our oil companies and politicians, both Repub. and Dem., have actually been smart enough to restrict our onshore and offshore oil production precisely to save it for when we really need it. Oil companies–maybe. Politicians–hard to imagine…
Neither of them have been "smart". Fortunately, when they get it wrong, there will still be markets around to correct the warped incentive structures they have put in place.
October 6, 2011, 1:28 pmJohn Cheek:
Nice comment also Warren.And no these clowns are not smart.They are the very definition of unintended consequences.JaC
October 6, 2011, 4:52 pmCraig:
If the attempt to break the Yuan-Dollar tie is successful, it will only expose the underlying cause of the trade deficit: the Fed's multi-decade-long policy of inflation. It has caused wages and prices in the U.S. to rise above those of competing nations and made foreign products more attractive to American consumers.
The effect of inflationary policy on a country's trade account was well-known up till about the 1940's when it fell down the Keynesian rat-hole. We caused our own economic problems. The trade deficit is only a symptom of them.
October 6, 2011, 5:33 pmdave smith:
While I'm no fan of the Fed, they do not cause the trade deficit with China. We have a trade deficit (better named "current account deficit" with China because the US is a better place to invest than is China. Also responsible are accounting conventions that wrongly compute intermediate goods.
October 7, 2011, 9:37 amSmock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:
I can see the book now:
"It Takes a Senate to Raise a China"
October 8, 2011, 2:16 amSmock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:
>>>> They are the very definition of unintended consequences.
Yeah, the most important one being the one of the unintended consequences of their fathers not having gotten vasectomies at an early age.
October 8, 2011, 2:18 amBrad Warbiany:
The US has been sending the world pretty pieces of green paper in exchange for durable goods for decades now. Those other nations have been doing for us the best thing short of burning those pieces of paper, by stuffing them under a mattress (building up dollar reserves). America, for decades, has been getting all the benefits of printing money without nearly all the visible effects of the inflation such printing should have created.
Why Americans are trying so hard to get those foreign nations to send us back that money is confusing -- putting that money back in circulation will cause price inflation.
October 8, 2011, 7:29 am