The Price of Political Morality
By Christopher Hancock July 6, 2007
Today’s Financial Times reports that Democratic presidential frontrunners Hillary Clinton and Barack Obama have both agreed to co-sponsor legislation that would levy duties on the “Made in China” label. They hope to persuade Beijing into revaluing the yuan.
Good luck.
Sadly enough, your humble editor here at the Sound Of Cannons is not too surprised. It’s just two days after Independence Day. And in the spirit of our nation’s birthday, we concede Americans want to feel, well, more American.
It serves to reason. We were hurt by Iraqi President Jalal Talabani’s recent decision to court the likes PetroChina. Don’t we deserve that oil?
What’s happened? Won’t anybody listen anymore? I mean…come on already! Iran keeps playing with yellowcake. Hugo Chavez continues his thinly veiled exit-stage-left strategy to all things American. Russia lays claim to the North Pole and all its Christmas goodies, which just happen to include 10 billion tons of gas and oil deposits… Not to mention the significant sources of diamonds, gold, tin, manganese, nickel, lead and platinum peacefully resting on top of the world. Who knew Santa knew how to pick such Grade-A real estate? Talk about long-term vision.
So it goes.
America is trying to direct the proverbial playground kickball match; and sadly enough, nobody’s falling in line.
So what do we do? Well, for one, Washington starts bashing Beijing. Why not? Somebody, other than George W. Bush and Scooter Libby, has to take the blame.
We suspect (fear would be a more appropriate word) China-bashing laws will symbolize America’s latest call to arms. But before, dear reader, you jump on the McCarthy-like chants for punitive justice, we humbly ask that you consider this…
Here at the Sound Of Cannons, we believe in the law of comparative advantage. We believe trading partners are better off specializing in the good in which they are the low-opportunity cost producer. We believe restrictions on trade decrease the wealth of our country.
We believe tariffs benefit the select few at the expense of the entire economy and its citizens.
Think of it this way…simple example…China produces widgets for Wal-Mart at $20 a widget. American producers can’t do the job for less than $25. So American widget makers may lose their jobs. They plead to Washington, and Washington comes to the rescue. Congress slaps a $10 tariff (tax) on all Chinese imports. Wal-Mart now turns to the American widget producer.
But the retail giant must now pay $25 for each widget they stock. Consequently, they raise the shelf-price for widgets by 25%. Unfortunately, many American consumers simply can’t afford the price increase. Wal-Mart sales drop. The company is forced to cut costs. They lay off 10% of their work force.
The point: The number of jobs protected by import restrictions will be offset by jobs lost in other industries. And to top that, widgets are now more expensive for everyone in the American economy.
It gets better: In response, China decides to slap tariffs on American exports. Now American semiconductor makers can’t sell their products to Chinese computer makers. Sales drop. More jobs are lost.
And here’s where it gets worse: China cleverly cedes to America’s demands. The yuan appreciates 40%. Now every good we consume sporting the “made in China” labels gets noticeably more expensive. And just try buying something that’s not made in China.
Furthermore, China no longer has to keep the yuan from appreciating relative to the dollar. Meaning, China’s dollar demand drops. The fundamental need to buy U.S. Treasuries no longer exists. The dollar falls even further. Investors around the globe now requrire a higher rate of return to hold U.S. dollars. Interest rates rise. The economy slows…and so on…and so on.
You get the point.
What to do…what to do? My advice to you: Assuming Senators Clinton and Obama get their way, it may not hurt to own Chinese assets independent of the American consumer. Assets like, say, PetroChina.
Talk about a backdoor solution. In an ironic twist of fate, not only will you potentially own a tangible piece of rebuilding Iraq, but you have the added bonus of owning assets denominated in a currency poised to appreciate anywhere from 20-40%. And when it does, that 4% divdend gets even better as the appreciating yuan gets converted into the declining greenback.
That’s my advice.
Saul Alynsky once wrote: “The myth of altruism as a motivating factor in our behavior could arise and survive only in a society bundled in the sterile gauze of New England puritanism and Protestant morality and tied together with the ribbons of Madison Avenue public relations… It’s one of the classic American fairy tales.”
Beware, dear readers, of the motivating factors behind presidential frontrunners. Always remember, in politics, so-called morality becomes a continuum as self-interests shift.
Today’s Financial Times reports that Democratic presidential frontrunners Hillary Clinton and Barack Obama have both agreed to co-sponsor legislation that would levy duties on the “Made in China” label. They hope to persuade Beijing into revaluing the yuan.
Good luck.
Sadly enough, your humble editor here at the Sound Of Cannons is not too surprised. It’s just two days after Independence Day. And in the spirit of our nation’s birthday, we concede Americans want to feel, well, more American.
It serves to reason. We were hurt by Iraqi President Jalal Talabani’s recent decision to court the likes PetroChina. Don’t we deserve that oil?
What’s happened? Won’t anybody listen anymore? I mean…come on already! Iran keeps playing with yellowcake. Hugo Chavez continues his thinly veiled exit-stage-left strategy to all things American. Russia lays claim to the North Pole and all its Christmas goodies, which just happen to include 10 billion tons of gas and oil deposits… Not to mention the significant sources of diamonds, gold, tin, manganese, nickel, lead and platinum peacefully resting on top of the world. Who knew Santa knew how to pick such Grade-A real estate? Talk about long-term vision.
So it goes.
America is trying to direct the proverbial playground kickball match; and sadly enough, nobody’s falling in line.
So what do we do? Well, for one, Washington starts bashing Beijing. Why not? Somebody, other than George W. Bush and Scooter Libby, has to take the blame.
We suspect (fear would be a more appropriate word) China-bashing laws will symbolize America’s latest call to arms. But before, dear reader, you jump on the McCarthy-like chants for punitive justice, we humbly ask that you consider this…
Here at the Sound Of Cannons, we believe in the law of comparative advantage. We believe trading partners are better off specializing in the good in which they are the low-opportunity cost producer. We believe restrictions on trade decrease the wealth of our country.
We believe tariffs benefit the select few at the expense of the entire economy and its citizens.
Think of it this way…simple example…China produces widgets for Wal-Mart at $20 a widget. American producers can’t do the job for less than $25. So American widget makers may lose their jobs. They plead to Washington, and Washington comes to the rescue. Congress slaps a $10 tariff (tax) on all Chinese imports. Wal-Mart now turns to the American widget producer.
But the retail giant must now pay $25 for each widget they stock. Consequently, they raise the shelf-price for widgets by 25%. Unfortunately, many American consumers simply can’t afford the price increase. Wal-Mart sales drop. The company is forced to cut costs. They lay off 10% of their work force.
The point: The number of jobs protected by import restrictions will be offset by jobs lost in other industries. And to top that, widgets are now more expensive for everyone in the American economy.
It gets better: In response, China decides to slap tariffs on American exports. Now American semiconductor makers can’t sell their products to Chinese computer makers. Sales drop. More jobs are lost.
And here’s where it gets worse: China cleverly cedes to America’s demands. The yuan appreciates 40%. Now every good we consume sporting the “made in China” labels gets noticeably more expensive. And just try buying something that’s not made in China.
Furthermore, China no longer has to keep the yuan from appreciating relative to the dollar. Meaning, China’s dollar demand drops. The fundamental need to buy U.S. Treasuries no longer exists. The dollar falls even further. Investors around the globe now requrire a higher rate of return to hold U.S. dollars. Interest rates rise. The economy slows…and so on…and so on.
You get the point.
What to do…what to do? My advice to you: Assuming Senators Clinton and Obama get their way, it may not hurt to own Chinese assets independent of the American consumer. Assets like, say, PetroChina.
Talk about a backdoor solution. In an ironic twist of fate, not only will you potentially own a tangible piece of rebuilding Iraq, but you have the added bonus of owning assets denominated in a currency poised to appreciate anywhere from 20-40%. And when it does, that 4% divdend gets even better as the appreciating yuan gets converted into the declining greenback.
That’s my advice.
Saul Alynsky once wrote: “The myth of altruism as a motivating factor in our behavior could arise and survive only in a society bundled in the sterile gauze of New England puritanism and Protestant morality and tied together with the ribbons of Madison Avenue public relations… It’s one of the classic American fairy tales.”
Beware, dear readers, of the motivating factors behind presidential frontrunners. Always remember, in politics, so-called morality becomes a continuum as self-interests shift.
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