More Corporate Welfare, in the Form of a Currency War
From the Hill, the ghost of Hawley-Smoot returns
The Senate voted Monday to advance legislation pressuring the Chinese government to stop undervaluing its currency, a practice most economists agree is giving the country an unfair trade advantage and is costing the U.S. jobs.
The Senate voted 79-19 to end debate on a motion to proceed to the bill, the Currency Exchange Rate Oversight Reform Act of 2011. While the vote does not mean the bill has passed, the strong show of support suggests it could well be approved in the upper chamber by the week’s end. Passage through the House is less clear, however, and GOP leaders have given no indication they will move forward with it.
Senate Democratic leadership, responsible for bringing the legislation to the Senate floor, heralded it as a way to create jobs and right a long-standing trade imbalance with China.
“China is by far the biggest exploiter of predatory currency practices,” Sen. Charles Schumer (D-N.Y.) said Monday. “[T]hese currency policies artificially raise the price of U.S. exports and suppress the price of imports into the United States, undermining the economic health of American manufacturers and their ability to compete at home and around the globe.”
This is a great example of how a group, in this case the Democratic Party, can say they are against corporate welfare, but in fact be 100% behind it simply by changing the terms used.
Look at the sentence in bold. Another way to write this would be "we want a law to help a few visible and influential manufacturers who most compete with China, but hurts consumers (ie every single American) and every business that uses imported raw materials.
Protectionism like this is corporate welfare for a few large manufacturers. I find it amazing the reporter can say that "most economists agree" an undervalued Chinese currency is costing us jobs. My sense is that most economists don't agree with this statement. All this law will do is unilaterally increase consumer prices and raw material costs, and I know few economists who think this is stimulative.
A cheap yuan is a direct subsidy of American consumers by the Chinese, and I am not sure why we shouldn't let it continue as long as they are dumb enough to keep doing it.
NL_:
If China just gave the cash directly to US consumers in the form of gift cards to spend at Chinese companies, journalists might be able to better cover these issues. But the easy story involving foreigners, especially those sneaky and inscrutable Chinese, is that they must be doing something deceitful and belligerent. Democrats are more prone to be xenophobic about China than Republicans are, since Republicans are too busy being afraid of Muslims in Tennessee and NYC. So the anti-China bias is pretty uncontroversial (even though newspapers otherwise tend to be pro-free trade).
If the Chinese were doing something about grammar structure or sentence punctuation, our nation's Journalism majors might be able to write a cogent if overwrought story ("exposing the TRUTH about China's WAR on the active voice!"). But this involves intermediate economics, and as we know from 95% of stories written about the minimum wage or rent control, journalists are still trying to figure out elementary supply and demand.
October 4, 2011, 9:34 amColoComment:
I'm not sure exactly what they teach in "journalism" schools, but it's clear from the evidence, published daily, that it's not economics, history, critical thinking, or business practices.
My top guess is "[fill in the blank] studies" or some such.
October 4, 2011, 11:50 amsteve:
Good Grief.
They really do seem to have every intention of replaying the Great Depression. In the foreign trade arena, the progression goes currency wars, tariffs, capital controls, export embargoes, Pearl Harbor.
Surely, no one is foolish enough to play the role of Japan in todays world. Are they?
October 4, 2011, 12:48 pmDon:
So, China's money is "out of sync" with the dollar by, what? 8%? If we killed corporate taxes, and taxed everything at the individual level, that would shave about 22-25% off the "cost" of doing business in the US. That would put us in the comparative driver's seat when competing with China and every other country on Earth.
I guess that just makes too damned much sense.
October 4, 2011, 4:56 pmSmock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:
>>> since Republicans are too busy being afraid of Muslims in Tennessee and NYC
Yeah, 'cause those chinamen, they were right behind blowing up those buildings in NYC and DC.
I can SEE how one thinks THEY are a threat...
:-S
NL shows a key flaw with logic: GIGO
Faulty premises lead to faulty deductions. And equating Muslims with Chinese in terms of terrorism is about as faulty a premise as you can have.
I consider the Chinese a threat but not in the same way -- their current errors are almost identical with those of the Japanese 20-odd years ago, when the media was screaming the same defective concerns regarding our imbalance with Japan. The reality was, the Japanese gave us real goods in return for lots of paper IOUs. When they came here to spend their IOUs, the sheer volume of them drove up the price of everything very quickly, and they bought a lot of stuff at very inflated prices. Five, ten years down the road, they discovered the valuation of those things were generally much less than what they'd bet, and in many cases they wound up selling back what they'd bought at a loss, creating a massive economic downturn in Japan that, thanks to them "importing" another defective concept, Keynesianism, their economy STILL hasn't recovered from.
China is on the exact same road, having learned nothing whatsoever about how capitalism works from seeing the errors of others.
The biggest possible concern with China is that, if their economy collapses totally from their bad economic practices, the likely solution for China's excess of males (thanks to that one-child policy) will no longer to be to compete for females on the business front, but on a military front. Jingoism is hardly an atypical response to financial problems. And a militaristic China with an even vaguely modern military capability is not going to be a pretty thing to combat.
One of the things that makes America powerful is that Our Rich Bastards are quite a bit smarter AND WISER than Their Rich Bastards.
That may change, but that's not the way to bet anytime soon.
October 5, 2011, 1:07 amSmock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:
>> Surely, no one is foolish enough to play the role of Japan in todays world. Are they?
Steve, as I allude to above, you can bet that China may well wind up doing it, and it's not quite a foregone conclusion that they'd lose that battle. They're at least as nasty as the Japanese when it comes to the oppressions they'll place on their populace, they have a much, much larger base of people to draw from (and, more critically, disproportionately male, which means more aggressive competition for female attentions on their part) and I believe Iraq and Afghanistan have shown that, while the USA has far and away the best damned military in human history, the US population has no stamina whatsoever when it comes to drawn out affairs. And if there is any nation which can grind things out patiently and slowly while losing steadily, it's China.
Our Children Will Live In Interesting Times.
October 5, 2011, 1:14 amSmock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:
.
BTW, Dr. Perry, over at Carpe Diem, wrote this piece a year ago:
Increases in U.S. Worker Productivity, More Than China's Currency, Responsible for Loss of U.S. Jobs
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October 5, 2011, 1:16 amTed Rado:
Why do I have the feeling that if we have a row with the Chinese over their currency, we will make fools of ourselves? Our glorious Treasury Secretary has the cojones to lecture others on reining in spending and controlling their deficits. A saloon keeper lecturing on temperance would seem more credible.
October 5, 2011, 11:39 amsteve:
@Smock
You may be right. I think China could quite possibly attack Taiwan or something. Which the U.S. responds to in typical world police fashion. As for who wins? I think China may win a limited war. They could simply bleed us for years with a nearly limitless supply of soldiers much like the Taliban is doing with a very limited supply of soldiers. Eventually we would get tired and go away.
But, a big war. A no holds barred World War III. I think I would have to give the edge to the U.S. Not because of American exceptionalism or anything, but rather because of America's huge moat. The U.S. has two very large oceans protecting its shores and very friendly neighbors.
I would argue that it would take China a minimum of ten years to build a capable navy. Without one, they have no way of effectively attacking the U.S. (short of nukes) In the meantime, the U.S. would play the same role it always does in World Wars. Build a bunch of factories to supply the weapons for everyone in your alliance. Attack the enemies factories forcing them to fight with restricted supplies while your own troops drawn from all over the world fight with seemingly unlimited supplies provided by unmolested factories.
The only caveat I can see to my theory would seem to be China's manpower. But, that really only depends on who ends up allied with whom. India could provide the solution.
October 5, 2011, 2:17 pmMarge:
The ignorance here is amazing. The currency war is over! China won by obliterating our manufacturing base. The fact that a libertarian blog accepts a govt manipulated currency as somehow permanently baked into the cake is bizarre and contradictory. I can assure you that cheaper 'goods' options will arise here in the US and Canada over time.
With the exception of a barter based economy, all currencies are manipulated.
So I suppose by the logic of this blog (crazy introvert yelling at the TV wearing slippers logic), Germany and Japan are NOT fighting tooth and nail to cheapen their currencies.
October 5, 2011, 4:34 pmhunter5000:
i'm firmly in the "don't trust the chinese" camp. from their massive and blatant hack attacks on every government and major corporation in the world; to their 'it's OK because we bought it (at fire sale prices)' colonization/exploitation of africa; to their shockingly massive & blatant intellectual theft to their ever-increasing bullying/belligerence of their neighbors (and anyone else who happens to be nearby) in "their" south china sea.....they're not our friends. they're not to be trusted.
But as much as I don't like/trust 'em, I have trouble visualizing why a gigantic, kept-barely-under-control-by-a-police-state-government-and-an-economy-based-almost-entirely-on-"manufactured for export" jobs would be so stupid as to allow themselves to get into a shooting war with their biggest customer: us. Once bullets start flying, 3 things happen almost instantly:
1) *all* chinese-made goods and foodstuffs are refused entry (and precious precious sales) into the USA
2) The US instantly freezes and/or refuses to redeem all those $3 trillion bucks of our paper the chinese (stupidly) hold and
3) 100,000,000 newly-unemployed chinese manufacturing sector workers go berserk and riot, and bring down....the almighty party?
The chinese aren't genius businessmen or supermen any more than the japanese were back in the '80's. and while we're at it, Sun Tzu is a highly-overrated spouter of generic platitudes. but I don't think they're *quite* so dumb as to precipitate the action that'll almost surely end up with their government overthrown, and their nation in flames. Still, the cockiness is a problem. a mere 20 years after their nation was devastated and the flower of their youth butchered at The Somme, Verdun, et al, Germany went and....started *another* world war. so gotta be careful: we live in interesting times.
October 5, 2011, 11:28 pm