What Is The PRC's True Agenda?

[oldr_n_wsr]

US and Chinese flags fly along Pennsylvania Avenue in Washington

did they display our flag when we visited them?

[Gob]

Whoops, just deleted that bit as it was a photo caption, here it is again, in full. (with image)

US and Chinese flags fly along Pennsylvania Avenue in Washington.

http://www.bbc.co.uk/news/world-asia-pacific-12212843

[Gob]

Yes they did

[oldr_n_wsr]

No problem then.

[loCAtek]

Tis common courtesy for a dignitary, 'eh?

[Andrew D]

China keeps its currency artificially low against the dollar, thereby keeping its exports to the US artificially cheap. The solution to that is straightforward: Impose a tariff on imports from China equal to the percentage by which the Chinese currency is lower than it would be on a free currency exchange. Besides the long-term gain to the US economy of greatly increased US jobs, that would have three bonuses: taking the steam out of China's artificially created economic engine, telling the WTO to pound sand, and putting WalMart out of business.

[rubato]

The Yuan has been devalued from last June to the present.


The chart only shows the past 120 days.

http://www.x-rates.com/d/CNY/USD/hist2010.html


yrs,
rubato

[Andrew D]

If that graph showed zero to ten instead of more than six and a half to less than seven, it would be obvious how tiny the devaluation has been. 6.81 to 6.59 is minuscule.

[Sue U]

Um, doesn't that chart show the yuan gaining strength against the dollar? Used to take 6.80 CNY to buy an Amero, now it's only 6.58 CNY; conversely, your US-buck used to buy 6.80 CNY, now only 6.58.

But what you're suggesting is needed is a greater revaluation of the renmibi, not a devaluation, to make Chinese goods more expensive and American goods cheaper relative to each other. Right?

[Andrew D]

I should have caught that. Nonetheless, the problem remains, as I wrote before, that "China keeps its currency artificially low against the dollar, thereby keeping its exports to the US artificially cheap." And the proper solution remains a compensating tariff.

[rubato]

You're right.

The Yuan went up vs the dollar.

Making the 'strong dollar' morons even more hysterical!

Too funny.


yrs,
rubato

[Andrew D]

The Yuan went up by a trivial tidbit -- nowhere near compensating for its artificial depression at the hands of the one-party dictatorship that runs the PRC and has as one of its principal objects to weaken the US as much as possible.

Making the "let's import more Chinese to displace American workers" morons even more risible!

Too sad.

[Scooter]

I can't be bothered to rifle thru the CSB to find it now...but I once posted a study done in the latter years of the Clinton administration that said the yuan needed to be devalued by about 20% in order to eliminate its distorting effect on trade...years later, when the yuan had been devalued by about 18%, it was still supposed grossly overvalued.

BTW, a 3% move in a currency over a 4 month period is not small. A lot of damage can be done by allowing a currency to move too rapidly in either direction.

[rubato]

A distortion in the exchange rate has effects in either direction. Some are positive and some are negative. It is unlikely in the long run that the benefits will outweigh the disadvantages to a significant degree.

When the Yuan rises the value of Chinese investments in US debt depreciate by an equal amount. 3% of a number measured in hundreds of billions is a lot. (900B according to one source today).



http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS

Imports as a % of GDP

******************* 2005 ….. 2009
China ****** ..... 32 ….. 22
United States ... 16 ….. 14

Just something to help people calibrate their perspectives a little better.

yrs,
rubato

[Sue U]

That's what I got to wondering yesterday: Even if they wanted to address the trade imbalance issue, how could the Chinese revalue the yuan without slitting their own throats on the dollar-denominated bonds they're holding?

[rubato]

They aren't really slitting their throats they are trading values between different mediums and between the present and the future. The loss in value is not real until they sell the bonds.

The relationship is complicated and the degree of interdependence makes it impossible, or at least very difficult, for either one to profit by harming the other.

Its easy to forget that you can pull on either end of a chain. The US is larger and pulls the hardest, but China is big enough for us to want their cooperation and we are big enough that they have to have ours.

yrs,
rubato

[rubato]

When the dollar went down in the recession, and they lost a huge amount of value very quickly, there were howls from the Chinese who said that we had 'tricked' them into buying the bonds! Or that it was a conspiracy!

Very funny.

Just think how much they would suffer if inflation hit 5%? ie They need us to prosper for them to prosper and they are smart enough to understand this.

yrs,
rubato

[Andrew D]

That's what I got to wondering yesterday: Even if they wanted to address the trade imbalance issue, how could the Chinese revalue the yuan without slitting their own throats on the dollar-denominated bonds they're holding?

So they probably won't stop artificially depressing the Yuan. Which is what makes a compensating tariff necessary.

[rubato]

By keeping the Yuan low the Chinese are subsidizing the consumers who buy Chinese goods for a very low price. Good for us and not so good for the Chinese workers who don't get enough in exchange to buy what they want. Mexico has a more legitimate complaint since they were big losers when the manufacture of cheap and low-skill goods went more from Mexico to China than from the US to China. That shift meant that Mexico didn't see the advantages we and they had hoped they would see from NAFTA; which would also have reduced the pressure for illegal immigration. The suffering of Mexicans was marginally increased to reduce the marginal suffering of Chinese peasants. Curiously, I don't hear anyone complaining about that.


We have a clearer case to impose trade sanctions in the areas of counterfeit goods, IP theft, and a corrupt Chinese government which allows poisoned products and often protects the poisoners. But keeping the Yuan low helps us as much as hurts us, arguably the balance is more in our favor.


yrs,
rubato

[Scooter]

If keeping one's currency artificially devalued was such a great thing, everyone would try to do it. It's far easier to achieve than the opposite.

China has been gradually ratcheting up the value of its currency for many years now, because it sees that it is in its interest to do so. But they can't be expected to shock their (and the world's) economy by doing so at a faster pace than markets can absorb the changes.