Can dogs make jokes? That was a question I saw on Yahoo recently. There’s some debate about whether or not they can.
But there is no debating that the U.S. Treasury can. According to the U.S. Treasury, China doesn’t qualify as a “currency manipulator.” As I said yesterday, what a joke!
The problem is this: The U.S. Senate isn’t laughing. And that could spell trouble for U.S-Chinese relations as the specter of protectionism creeps closer to reality.
Anyone who follows the global markets for more than about two weeks knows the game China is playing. They are artificially suppressing the value of their currency to stimulate exports. This policy has worked very well for China. Exports are booming. Industrial production is exploding. Fixed investment into China is soaring.
The trade surplus with the U.S. keeps climbing. And their foreign exchange reserves have penetrated the ozone. I think you get the picture -- China’s policy to stimulate exports and become the world’s manufacturing platform has worked. This is why it’s unlikely they will make little, if any, concession on the currency front. “Why fix things when they aren’t broken?” say the Chinese.
I’m no fan of China. I’ve done my share of China bashing, as I don’t like Commies even it they are “reformed.” But they do have a point. And the point is: “It ain’t broke, so don’t fix it.”
China’s Symbiotic Relationship with the U.S.
The U.S. has benefited in a lot of ways from its symbiotic relationship with China. For example, the U.S gets subsidized interest rates, because China holds such a massive amount of U.S. Treasury paper. So it’s generally agreed that this has kept long-term U.S. interest rates lower than they otherwise would be.
China also helps keep U.S. inflation in check by making available to U.S. consumers good quality products at everyday low prices. Finally China provides a low-cost manufacturing platform for U.S. multi-national companies, which helps boost profits.
Yet, there is a downside. And the U.S. Senate is focusing on that downside.
The downside is that middleclass Americans are bearing the brunt of China’s growth on two fronts. First, the U.S. has lost “good paying” manufacturing jobs. Secondly, the U.S. middleclass sees stagnate wage growth because of the intense price competition from Chinese imported goods.
According to the U.S. Bureau of Labor Statistics, the inflation-adjusted wages for workers in the middle of the pay distribution -- is up a total of just 0.9% over the past seven years.
Our Senators Can’t Stand All Those Nasty Letters Anymore
The middleclass constituency is the group of Americans who send letters and emails to Senators. The Treasury doesn’t get cards and letters from the average American. And even if they did, it’s unlikely they’d have time to read them. After all, it’s takes a lot of time and effort to develop a good standup routine.
Senators must be getting a lot of mail lately, because they are now proposing legislation that is tougher than usual on China. This “get tough” stance has a two-part twist.
First, senators are lobbying for the right to take complaints about China’s “manipulated” currency to the World Trade Organization based on the grounds that it represents illegal dumping of goods. They also want to force those comedians at the Treasury to change U.S. exchange rate policy and force the Treasury, in conjunction with the U.S. Federal Reserve Bank, to take action when other nation’s currencies get “out of line” with the fundamentals.
We know judging fundamentals is a subjective process. But the fundamentals backing the Chinese economy are all pointing skyward. There’s a belief among experts that based on these fundamentals, China’s currency is about 40-60% undervalued relative to the dollar.
This seems to be an open and shut case, our esteemed Senators would argue. And maybe they are right. But as I said, the US-Chinese relationship has not been a one-way street. And China is a huge driver of the world’s economy.
So the stage is set for battle. And remember, if you own any financial assets, anywhere, you have a dog in this fight.
But there is no debating that the U.S. Treasury can. According to the U.S. Treasury, China doesn’t qualify as a “currency manipulator.” As I said yesterday, what a joke!
The problem is this: The U.S. Senate isn’t laughing. And that could spell trouble for U.S-Chinese relations as the specter of protectionism creeps closer to reality.
Anyone who follows the global markets for more than about two weeks knows the game China is playing. They are artificially suppressing the value of their currency to stimulate exports. This policy has worked very well for China. Exports are booming. Industrial production is exploding. Fixed investment into China is soaring.
The trade surplus with the U.S. keeps climbing. And their foreign exchange reserves have penetrated the ozone. I think you get the picture -- China’s policy to stimulate exports and become the world’s manufacturing platform has worked. This is why it’s unlikely they will make little, if any, concession on the currency front. “Why fix things when they aren’t broken?” say the Chinese.
I’m no fan of China. I’ve done my share of China bashing, as I don’t like Commies even it they are “reformed.” But they do have a point. And the point is: “It ain’t broke, so don’t fix it.”
China’s Symbiotic Relationship with the U.S.
The U.S. has benefited in a lot of ways from its symbiotic relationship with China. For example, the U.S gets subsidized interest rates, because China holds such a massive amount of U.S. Treasury paper. So it’s generally agreed that this has kept long-term U.S. interest rates lower than they otherwise would be.
China also helps keep U.S. inflation in check by making available to U.S. consumers good quality products at everyday low prices. Finally China provides a low-cost manufacturing platform for U.S. multi-national companies, which helps boost profits.
Yet, there is a downside. And the U.S. Senate is focusing on that downside.
The downside is that middleclass Americans are bearing the brunt of China’s growth on two fronts. First, the U.S. has lost “good paying” manufacturing jobs. Secondly, the U.S. middleclass sees stagnate wage growth because of the intense price competition from Chinese imported goods.
According to the U.S. Bureau of Labor Statistics, the inflation-adjusted wages for workers in the middle of the pay distribution -- is up a total of just 0.9% over the past seven years.
Our Senators Can’t Stand All Those Nasty Letters Anymore
The middleclass constituency is the group of Americans who send letters and emails to Senators. The Treasury doesn’t get cards and letters from the average American. And even if they did, it’s unlikely they’d have time to read them. After all, it’s takes a lot of time and effort to develop a good standup routine.
Senators must be getting a lot of mail lately, because they are now proposing legislation that is tougher than usual on China. This “get tough” stance has a two-part twist.
First, senators are lobbying for the right to take complaints about China’s “manipulated” currency to the World Trade Organization based on the grounds that it represents illegal dumping of goods. They also want to force those comedians at the Treasury to change U.S. exchange rate policy and force the Treasury, in conjunction with the U.S. Federal Reserve Bank, to take action when other nation’s currencies get “out of line” with the fundamentals.
We know judging fundamentals is a subjective process. But the fundamentals backing the Chinese economy are all pointing skyward. There’s a belief among experts that based on these fundamentals, China’s currency is about 40-60% undervalued relative to the dollar.
This seems to be an open and shut case, our esteemed Senators would argue. And maybe they are right. But as I said, the US-Chinese relationship has not been a one-way street. And China is a huge driver of the world’s economy.
So the stage is set for battle. And remember, if you own any financial assets, anywhere, you have a dog in this fight.
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