As expected, Treasury has put off a decision on whether to label China a currency manipulator for a few months, pending negotiations with China. The problem is, however, is that China has been signaling that it is pretty non-negotiable (yes, there has been the occasional conciliatory remark, but they have been notably few and far between).
The fact that Chinese President Hu Jintao is coming to Washington on an unrelated matter (a nuclear summit) when there were concerns that he would snub the US over various affronts, like Obama’s meeting with the Dalai Lama, is a positive development. Yet to read the press, you’d think spring was busin’ out all over in the US-China category. And that at least in part seems to reflect a tendency towards black v. white characterizations rather than an assessment of the state of play.
Yes, talking with China is decidedly better than not talking. But China has also been quite willing in very public forms like the IPCC to take a hard line position. The flip side is the US does have a nuclear option. Declaring China a currency manipulator and then following through with various trade restrictions would hurt China much more than the US (after all, the US needs to get its economy into a better balance of savings and consumption, and weaning itself off unduly cheap imports is one starting point). But the US wants Chinese help on Iran, which the Chinese no doubt see as a significant bargaining chip.
The reality is the US has made a tactical error: China’s cheap currency is a problem for not just the US, but for the EU, India, and other countries. This should be a multi-lateral, not a bi-lateral discussion. But the Chinese leadership may not have many degrees of freedom. As James Mann noted in The New Republic:
This time, however, the tough line on domestic dissent has gone hand-in-hand with a distinct hardening of its positions on a series of international issues. At the U.N. Security Council, China has emerged as the principal obstacle to multilateral efforts to stop Iran from acquiring nuclear weapons. China has pursued essentially mercantilist policies by maintaining an undervalued currency, despite repeated appeals from the United States, Europe, and elsewhere. By most accounts, China helped lead the way in preventing any serious action against climate change in Copenhagen last December. After tightly circumscribing Barack Obama’s visit last November, China has taken tougher positions than it had in the past toward U.S. arms sales to Taiwan and a visit to Washington by the Dalai Lama. But it isn’t just the United States: The Europeans, the British, and the Indians have all run up against what seems like a new Chinese assertiveness, too….
The most obvious explanation, and the one most frequently put forward, is that China has finally recognized its own growing power…..The problem is that this explanation doesn’t quite add up….
In fact, China’s recent assertiveness sometimes seems counterproductive, in ways that China’s foreign policy usually is not. More commonly, China has been skilled at flexible, soft-shoed diplomacy; the aim has been to keep other major powers divided and, where possible, competing with one another for influence in Beijing. But China’s recent policies on human rights, on maintaining the low value of its currency, and on climate change have all tended to remind Americans and Europeans of their shared values and interests in dealing with China.
If Chinese foreign policy has been (on many levels) counterproductive, that may be because its intended audience isn’t in Washington or Brussels. That is, its international strategy is increasingly driven by undercurrents at home. The Chinese leadership seems uneasy about losing control. For the past several years, it has worried about the development of a popular movement comparable to the ones that produced the “color revolutions” in Ukraine and Georgia.
Yves here. It would be useful to get the input of people who know politics within China, but I have to think making anything that looks like a real concession to the US (save perhaps on Iran, which may not be very high profile internally) is not going to go over well domestically. So are we going to see a timetable on remnimbi appreciation (and I mean more than a token two or three percent, or maybe a further widening of the “dirty float” band)? It would be better if I were proven wrong, but I would not hold my breath here. Indeed, aside from Hu’s decision to come to the US, there appear to be no conciliatory signals from the Chinese side, while the US officialdom has backed down on its rhetoric.
Now readers and some commentators have pointed out that the level of the remnimbi is far from the only issue here; both the US and China need to restructure their economies so as to become less co-dependent. That means, among other things, China having to shift to a consumption-led economy. That is a ten to twenty year project, when the US and the rest of the world needs a faster adjustment (as in they are no longer willing or able to keep accumulating debt at the level needed to sustain a high level of Chinese exports). Some of the adjustments in the US are already starting to happen (as in manufacturers starting to move more production back to the US). There are other structural issues it would behoove us to address, but we won’t because they smack too much of industrial policy (so we instead have industrial policy by default, through which industry gets the most bennies via the strength of its lobbying efforts). Setting priorities for infrastructure would be one; another would be to reverse the idea that a college degree is necessary for employment, and start creating meaningful vocational tracks in high school, as many educational systems in Europe do. Of course, that would hurt community colleges, but they could stand to have a run for their money (and given the concerns about dependency ratios in the US, having kids who wanted to get to work sooner able to get to work sooner would be a plus).
But the US-China row illustrates much deeper issues. The usual way for indebted nations to get out from under their overhang is a partial repudiation of the debt (via defaults or restructuring) and a currency depreciation to help the debtor country avoid a deflationary shock and earn enough to pay off the debt that remains. Before readers start arguing that the debtor “ought” to pay his obligations, that line of thinking is misguided. The resulting deflation not only assures default, but produced greater collateral damage (not just greater ultimate economic costs in the debtor country and its trade partners, but political instability).
But what do we have now? We have the financial oligarchy in charge in most advanced economies, so they are successfully resisting the needed debt restructurings, and getting various states to reimburse them for this misadventures. So realistic debt workouts are not taking place. Similarly, the “depreciate your way to semi-prosperity” route is blocked because so many nations want to play that game right now. Some countries have to be willing to be importers, and no one seems particularly interested in that role right now. This suggests a possibility that is seldom discussed in polite company, namely, that the level of trade we have come to think of as normal, indeed virtuous, maybe an unsustainable aberration. Carmen Reinhart’s and Kenneth Rogoff’s showed that high level of international capital flows, which usually goes hand in hand with high levels of international trade, is associated with large and frequent financial crises.
So we may be between a bigger rock and a hard place than most realize. It isn’t just that President Hu may lack the room as well as the inclination to concede much, and Congress is likely not to feel very conciliatory if that comes to pass. The bigger issue is that the least costly way for many players to get out of their economic mess – renegotiation of debt and currency depreciation – is partially, if not fully, blocked. The resulting pressures and dislocations have the potential to produce even bigger ruptures.
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This is a classic case of global market breakdown. The Pareto solution is far superior to the Nash solution. I wish I were wrong but the only thing moving the Nash solution moving towards a Pareto solution is Peak oil.
In the absence of real statesmanship coming from Washington, every country is pursuing its own interests to the detriment of everyone else’s. This is all highly predictable. Of course, if there had been any statesmanship in Washington over the last 30 years, much or all of the current crisis could have been avoided.
Chapter 8 of Econned, “The wizard of Oz”, about the outcome of the Plaza Accord, p. 212:
“But contrary to orthodox economic thinking, the trade deficit with Japan persisted, despite the fact that the dollar fell further against the yen than other currencies.”
Are we expecting anything different from a devaluation against the RMB?
You are taking the quote out of context! :-)
The book does explain what happened. US imports from Japan DID fall, so the trade deficit narrowed, but the US really wanted to see US exports to Japan rise. That did not happen because Japan had what is politely referred to as “structural barriers” meaning all sorts of crazy non-tariff trade barriers. Plus a lot of Japanese consumers genuinely believe that their products are better, and so aren’t keen to buy foreign wares. Japan is a country that produces perfect grapes and sells them in wooden boxes for $100 for business gifts. For some products, the quality differences are real, in others, it’s just perception.
Different fact set with China. The big issue is Chinese exports to the US (I don’t think anyone thinks a stronger RMB will lead to a big upsurge of US exports to China), and their big selling point is price.
And even the fall in the trade surplus that Japan suffered led the Bank of Japan to cut rates to quite deliberately create an asset boom to stimulate more consumption. We all know how that movie ended.
ehrrr, japanese product IS better. They don’t have to pretend. In fact all they have to do is create an honest but impossible national standard and thumb their nose to the rest of planet.
Their competition to keep out of their market is not US, but Korea and china. US brand is long gone in most part of the world it’s not even a discussion anymore short of most significant brand like google or intel. Anything machine, chemical, or electronic are the big 3 asian.
I find it preposterous and borderline offensive that the assumption is that China’s government is thought to be afraid of losing power whenever it takes actions that are clearly in the best interest of the country.
Sometimes we hear that internal rebellion is likely if popular voices aren’t heard on stuff like censorship; here, we read that the positions the Chinese government is taking are all kowtowing to a restive populace.
We have collectively portrayed China — and other governments that we just don’t like — as having both a weak grip on power, and an iron fist.
This is the political version of FUD. FUD about China’s internal stability has been all over naked capitalism for a long, long time. I think China is one of the more stable countries in the world.
The unrest that has occurred has been — like the color revolutions were — supported in some sense by America. The servers for the World Uyghur Congress are in Terrence, CA, and they are funded indirectly by Congress.
Paranoid about America’s intentions in this dialogue too? You bet. We’ve repeatedly given them every reason to be.
I am very, very tired of our constant manipulations of other countries and our projection of our own problems onto the world. Let’s fix things at home first and remember that the world is not ours to control. The imperialism has to stop — it’s killing our young men and women, and it’s a crushingly good excuse to not reform the severe problems we have at home.
Well put ndk. I gives me hope, that persons such as your self, with your back ground, see that we do have a large part in all of this. Maybe if we castigated our actions a bit more aka reflection, things would move forward.
Skippy…Kids blame it on the monster under the bed too….eh.
ndk,
Did you bother reading the New Republic article? It makes a credible case, using historical examples of past Chinese actions, that China has been FAR more adept in its external politics than now. It also gives evidence to support the view that the regime is a tad nervous. Have you read Chinese history?
China has pursued an openly mercantilist strategy, copying the Japanese playbook with some improvements, and that strategy ended badly with Japan. In financial crises, creditor countries face a much more difficult adjustment than debtors. Witness the Great Depression and Japan.
We enabled China, but it was China that chose this development path, one that was self-limiting (as with Japan, once it sucks too many jobs out of its trade partners, or they hit debt accumulation limits, they start pushing back). I said the relationship was co-dependent, meaning it is not healthy for either side.
China has some other difficult issues to work through,. One is the fact that increasing debt levels are producing less and less GDP growth (now over 6 RMB of debt for every 1 RMB of GDP growth, an awful ratio for a developing country) and it already has government debt levels on a par with an advanced economy. You seem to forget they had a major banking crisis a decade ago. Second is the widespread corruption at the local level, and the corollary that the central government has considerable limits in implementing any policy changes that require action on the local level. Third, they have a demographic time bomb that starts kicking in in about seven years, thanks to their one child policy.
Both of you are right, to a degree.
Popular sentiment is decidedly negative in China, particularly over high real estate prices, because most of the profits went to the power elite.
You can say the government is a tad nervous, but not in the sense that they are genuinely worried about a Color revolution. That’s not a realistic threat.
Their concern, or more specifically the concerns of the current management team in Beijing, is that their unpopularity makes them vulnerable among various factions of the ruling party. It is an intra-party power struggle, not one of potential peasant uprising.
Yves,
What are the reasons that Japan stagnated? Massive bubble, no doubt, but how much of that 1989 bubble was due to the 1985 Plaza Accord, which incidentally totally failed to fix Japan’s persistent trade surpluses? What lessons might China take from that?
Yes, I’m familiar with Chinese history. There is not only a history of unrest and domestic civil war; there is not only a long history of ownership of Xinjiang and Tibet; there is not only a strong tendency to look inwards, rather than beyond. There’s also a very long and ghastly history of Western imperialism, and if the editorials of Xinhua and other papers are any indication, those open opium sores are festering badly right now.
Our increasing debt levels are also producing less and less growth; it’s a global pattern. We had a major banking crisis a year ago, that by many accounts has not really been resolved. We have our own admirable level of corruption.
I’m not making the argument that China has no problems. But to suggest that revaluation of the RMB is a cure for any of those problems you named makes little sense to me(inflation there is hardly rampant, and asset price bubbles are global). It takes a leap of logic that I just don’t follow. But even that isn’t my fundamental complaint.
Let’s make our own policy, not China’s policy. If we really believe relative nominal currency values matter so much, then let’s follow Krugman’s suggestion and slap a 25-40% tariff on Chinese imports. I disagree that it’s a wise move, but it’s within our power, and within our borders.
My fundamental frustration is our imperialism. Attempting to dictate a policy can be shown to have destabilized other economies to a sovereign country, while happening to reduce the value of our debt as denominated in RMB, is a horrible gesture. We can supply ideas in back channels. That’s fine. Openly suggesting “regime change” might occur, selling weapons to regional neighbors/territories, demanding a revaluation of the RMB to solve our problems, and propping up revolutionary groups is not.
ndk,
You have several counterfactuals here.
China is running a fixed (well, now a dirty float) currency peg. You seem to forget this elephant in the room. That is a de facto across the board export subsidy. If China did it that way, this would be a massive violation of WTO rules. Yes, we tolerated that, and we wanted China in the WTO because we thought it would aid in the spread of democracy (incredibly naive, but that was the logic). So we weren’t about to hound them when they appeared to be opening to the West.
You also forget that Japan agreed to and participated in the Plaza Accord. And I worked closely with one of Japan’s very top banks during that period, first as a consultant, later as the head of its M&A department. It may seem bizarre now, but I heard NO complaints from Japanese companies re the rise of the yen, including exporters. They were delighted with the purchasing power that it gave them overseas. And I had insider status, I was not in a gaijin ghetto. The BoJ overreaction was far worse than the impact of the currency appreciation. Japan’s trade surplus with the US shrank, but it remained a surplus even as the yen overshot its target because the Japanese were not open, from a cultural and non-tariff barrier standpoint, to US imports.
You are also incorrect in your posture on the US debts held by China as FX reserves. These are an economic dead weight. They cannot be used domestically, and if China were to try to liquidate them, the dollar would fall, the outcome China is trying to avoid. These were never acquired as investments, but as a way to finesse a trade subsidy (which would have shown up as government expense if done the straightforward way). They have become a political hot button domestically, so now China is forced to act as if they are “investments” when they cannot be spent domestically.
Yves,
Japanese did not complain then, but now, looking back, they feel they have been cheated. There is popular book in Japan called something like “financial defeat” (meaning the second defeat by the US, after WWII). That book is translated into Chinese, and it is now common understanding in China that the Plaza Accord was what did Japan in.
“These (dollar reserves) were never acquired as investments”
Those dollars were seen as a store of value until 2009, when quantitative easing became a household term.
I agree that American imperialism is the underlying and undiscussed problem.
I am also glad to see the visibility given to the postulate that global consumption is not there to even fuel the race to the bottom.
This train wreck we are living through is like what they say about the future not being evenly distributed.
We need a world government that deals with population and resource limitation issues or we are toast in 30 years but I will be dead by then so it will be others problem. Ah, the golden years, right?
Imperialism is indeed a problem. It doesn’t even serve American public interest. The awesome power of the US military now serves Wall Street interest exclusively, as it is used as a means to force other countries into decisions that benefit Wall Street bankers.
Democracy can not survive in an empire.
ndk: “My fundamental frustration is our imperialism.”
Understandable, but the problem is that you’re seeing every US foreign policy concern through the lens of US imperialism. If anything Chinese currency manipulation is “imperialist” (creating artificial advantages for domestic production is a hallmark of imperialism – the British Empire was for example were very fond of it). Certainly it’s a violation of international agreements that China was an eager signatory to, and which the US and most other countries abide by.
“Let’s make our own policy, not China’s policy.”
Exchange rates can’t be strictly domestic policy as by definition they affect more than one country. They are fundamentally a part of international relations.
“If we really believe relative nominal currency values matter so much, then let’s follow Krugman’s suggestion and slap a 25-40% tariff on Chinese imports.”
If we can’t get China to revalue the renminbi, then that’s the next best thing. Unfortunately it’s not nearly as good as the first. Chinese currency manipulation raises the value of the dollar compared to all other currencies, not just China’s. And things shipped from China containing non-Chinese materials and components would also be affected by the tariff. If something was assembled in China using American components, we could even wind up slapping a tariff on our own products!
The Chinese history and American imperialism you described make me nervous. It looks like it is going to be very difficult for China to budge, given the series of US actions that China considered done in bad faith or even hostile to China’s sovereign integrity and security.
What would be the consequences if US really names China a currency manupulator(I tend to think this is going to happen but I really hope not)? If this happens, my take is that there will be another more serious economic storm at least(probably with a very serious political fall out between China and US as well)
How many decades have they suffered attack by the west, is this nothing. Japan attempted to exclude the west till it was obvious that such isolation would leave them vulnerable. Why did Macarthur present an olive branch to the imperial court, when he could have removed the very apparatus that he fought so hard against, so many American lives lost? Why did we abandon the court of imperial china?
Why did we force are way into china, not unlike ETC, then lament, project villainy upon them when they don’t play by our rules? To whom do we place blame upon over this entire criminal GFC, where did it start and why did it start, for whose benefit?
Yet many wish to point fingers east?
Why do you beat US up? Don’t you understand that they’re perfectly happy to, AS THEY SHOULD BE (and capable of doing so if we’re too craven to fight back). They’re looking out for their interests, applying protectionism against us while we IDIOTICALLY leave our markets wide open. They will turn us into a colony if we’re not careful. I don’t care that we’ve used imperialism to our advantage, not for a moment, while I’m making decisions vis a vis China. I CANNOT AFFORD TO. If I decide that China needs to end its protectionism I’ll apply whatever leverage I have. If it’s correct that the debtor nation has the advantage, as I’ve been convinced, then I expect the administration to press its advantage. If HISTORY suggests it might be best to speak circumspectly, then do so, but China must change its policy.
Ended badly with Japan? I don’t understand. They seem rather fine to me, consuming copious amount of Hermes and Gucci last time I check.
So what if they had real estate crash.
ZIRP + big debt? All internal. I doubt they are going to run out of money/have to borrow externally anytime soon. Compare to now us ZIRP plus huge debt to china/japan in US.
Japan is experiencing 45% export surge recently and they are beating everybody in asia market handily. And they can pretend to have depression/deflation for several more years I am sure.
Not “healthy” in conventional western economy sense. But they will be around longer than us. We are about to launch another war against Iran soon too.
This post isn’t China bashing, your reaction looks extreme, gives the impression you have a big time vested interest in the “China ascendant” story. Even if that’s the end game, events are seldom linear, witness the US in the Great Depression.
Iran doesn’t have a nuclear weapons program. You shouldn’t reprint unsubstantiated claims from The New Republic to the contrary.
China is acting much more responsibly towards Iran than the US acted with regard to Iraq.
I have posted a quite a few links to articles pointing out that the Iran threat looks awfully trumped up. The TNR piece is misleading in its implications (the idea that it is “preventing” Iran from acquiring nuclear weapons suggests intent…which is certainly not clear, and also suggests that this is our only goal, when our objectives are a lot broader…) but that excerpt does not say that Iran has a nuclear weapons program.
I’m not happy with our Iran policy, but China may find that chip easier to trade than other chips, if it wants to trade at all.
I don’t think it is about trade with China but it is about Iran as far as US is concerned. When you look at the gravity of each, it becomes obvious.
It would obviously good for all concerned if China is able to shift from an export-driven economy to an economy driven by domestic consumption. But has any other economy accomplished a similar shift? Aren’t all the East Asian economies that were developed through exports still export dependent?
My guess is that the very qualities that enable countries to thrive as exporters are obstacles to developing a broader domestic economy. Two that are obvious are concentration of political power and the absence of effective capital allocation mechanisms. Power is in the hands of those who benefit from the export economy not in the hands of those who would benefit more from higher domestic consumption. And neither companies nor the government have ways of allocating capital to the most effective investments. They just throw capital at everything, live with the resulting low profit ratio, and take the resulting over-capacity and export it below cost.
Elizabeth Warren shows that the middle class has been spending more and more on housing and taxes and less on t-shirts and such. We can state this as a causation, the middle class could spend more on housing and taxes because the price of clothing, food and such has been decreasing. So, what would happen if the price of stuff in Walmart, HomeDepot and even Sacks doubles? What would happen to housing: it would be food/clothing, a mortgage payment and a credit card payment? I’d say food/clothing wins. What % of the population would be pushed into “prostitution and chiclet sales” (as a commenter put above)? Or this shouldn’t worry us much…
People might wear clothes longer and have fewer outfits, horrors! I lived in Australia, and it was simply stunning to see how much smaller closets were in apartments, including in high end buildings (and this is by the standards of Manhattan, where everyone thinks they need more closet space). People in other economies seem to get by with smaller wardrobes.
And the idea that Americans can’t be competitive is way oversold. We substitute factory labor cost reductions with transit times (shipping costs, greater inventory financing costs), tremendous loss of flexibility (how much do you lose due to long lead times, you underordered, or worse, overordered and are stuck with losses? That’ll wipe out a lot of margin, trust me), and the greater managerial costs (at MUCH higher wage rates, it also does not take a lot of managerial cost to wipe out factory labor savings).
Key example: American Apparel. They make T-shirts and sweat shirt, which puts them in direct competition with Chinese manufacturers. They have a factory in LA. They pay $12-$13 an hour. They have a well run factory, but by all accounts, the rest of the business is badly managed. And they are profitable.
With all due respect, you seem to assume that all people over-consume. That may be true of the upper echelons of consumers, those who so marvelously profited from the calamity one way or another. I have never been to Australia, but lived in Europe for an extended period of time. Some people in the US have too much of a house and a closet, but most don’t. It won’t be just a t-shirt worth of difference.
Gutting the dollar would make us competitive all right. Except at the price of wide-spread poverty and all the accompanying ills, including a loss of standing and prestige in the world, a reverse brain drain, technological stagnation, corruption. We risk turning into a backward country with nukes and a reactionary congress. Let’s hope I am wrong, but it would nice to have at least some bulk part figure on what it would mean for the household budget and the American dream.
As to American Apparel, it seems to hire awfully lots of undocumented immigrants, whom Obame wants to be fired now to make space for the American workers. I would check pay stubs first before putting much trust in those pay figures you site.
A journalist I know looked at their operations extensively, and I’ve seen her research topics in my space. She is obsessively thorough. So I would tend to trust the $12-$13 an hour. American Apparel also charges a price premium (I am told, not by her but others who buy their stuff) because their product lasts longer.
An “American Apparel” virtual tour is available here: http://americanapparel.net/contact/ \
Very heartwarming: “Hecho en U.S.A.”
A bit more edifying and value added in southern California factory tours is this visit: http://www.sherline.com/factour.htm . Sherline makes small machine tools, including computer controlled variants.
Yves, all, repeat all, of those American Apparel jobs will be replaced by dirt cheap light industrial robots in 5 years. Or less. I suggest you address your mind to an environment in which light industrial robots cost $2000 and less to build for 5-6-7-8 axes of motion & sensors.
Steppers, driver boards, Acme leadscrews or ballscrews, application board w/firmware and software, the works.
Now for a little Future Shock. This environment is pretty much here already. Hindu Indians and Haitians at 25 cents/hour and no benefits won’t be able to compete with these on cost, quality or quantity.
biofuel: “Gutting the dollar would make us competitive all right. Except at the price of wide-spread poverty and all the accompanying ills, including a loss of standing and prestige in the world, a reverse brain drain, technological stagnation, corruption.”
So reducing the exchange rate of the dollar to the point where we have balanced trade is “gutting the dollar”? You write as though the current exchange rates were part of some natural order. What gives us the right to endlessly get goods from other countries without compensating them by giving them goods of equal value?
As for “wide-spread poverty and all the accompanying ills”, you’ve got it backwards. The overvalued dollar has destroyed many middle class jobs in this country. Is loosing that good paying factory job really compensated for by slightly cheaper stuff at Walmart? Is eliminating 100 middle class manufacturing jobs in exchange for one overpaid outsourcing consultancy really a good tradeoff?
Moreover the trade deficit is unsustainable – the rest of the world won’t send us goods forever in exchange for pictures of dead presidents. We either start fixing the trade deficit now in a way that can be more controlled and gradual, or we let it fester until it crashes. It’s not a question of whether or not we fix the trade deficit, but when and how.
As for “technological stagnation”, you’ve got that backwards too. Technological development is leaving the US for places like China because of the overvalued dollar.
alex, the key word is “destroy -ed-”, as in it’s already happened. No one was concerned about the “middle class” then, and it seems like no ones is concerned now when reducing the purchasing power of the dollar is sold as a remedy for all of our ills. Pardon me if I am not persuaded.
As to technology, read what it says on the iPad: made in China, designed in the US. When “correcting” out trade deficit is done it might just say made in the US, period, that is, of course, if you could afford to buy one.
Oops, slow afternoon, meant to say made in China period, I guess I wish it said made in the US.
biofuel,
What you’re saying is that if the cost of doing things in the US goes down then fewer things will be designed and/or built here. That makes no sense.
All I am trying to say is that the process could be more painful than some may assume. We have a population that had a certain standard of living and, at least during the transition period, that standard of living would diminish significantly. China, on the other hand, was coming from a very low standard of living to begin with. “Brains” come to the US because of, again, a good standard of living; no less important is prestige, and of course, opportunity. All of these things will take a hit.
Plus, I would be cautious assuming that we could go in reverse. We have a huge “overhead” cost in the financial sector. It will take time to develop and introduce new products that people out there might want to buy. Are the banks willing to lend long term for research, innovation, factory construction. Do we have the human capital required to manufacture stuff.
Alex,
As for “technological stagnation”, you’ve got that backwards too. Technological development is leaving the US for places like China because of the overvalued dollar.
For numerous reasons, those looking for robotic components in the near future will likely be getting lots of Chinese take-out. About the only reason that doesn’t exist is because any of it was developed there. None of it was developed there.
Charcad
How much would an iPad would cost in a trade war with China?
My impression is that the parts are not heavily from the mainland, but Taiwan. In general, Taiwan is a much bigger supplier of chips than mainland China:
http://www.geek.com/articles/mobile/ipad-component-suppliers-named-and-the-winners-are-2010023/
And since we do need to be consuming less, as much as fewer iPad sales might be sad for Apple, it’s hardly a tragedy for the US.
I don’t know, in our service oriented economy, those Apple stores employees won’t be happy, nor the mall owners, or programmers who write apps for the toy, etc, etc, etc….
The apps writers haven’t started yet in a meaningful way, I know some of the firms targeting that space. And they expect to get a VERY big premium what they get on iPhone development, BTW.
700K unit during opening, maybe 3-4m during lifetime. Asus sold that many netbook in a quarter.
Taiwanese component makers are increasingly moving their manufacturing to… China.
“Before readers start arguing that the debtor “ought” to pay his obligations, that line of thinking is misguided. The resulting deflation not only assures default, but produced greater collateral damage…..”
So it is unreasonable of China (IMF 2009 GDP per capita $4,000) to expect the USA (IMF 2009 GDP per capita $46,000) to faithfully service the debt that the USA sold in the open market for its own reasons, because paying the Chinese might cause deflation and collateral damage (in America of course)? Does that not strike you as a tad decadent, Yves?
Straw man.
The argument was that China does not want to loosen the peg because it will therefore show “losses” on its Treasuries. The record of pretty much every emerging economy is as they develop, its currency appreciates in value. So any developing economy that acquires foreign assets early in its development is likely to suffer losses on foreign asset investments.
And separately, think of what China’s national balance sheet would look like if China has instead gone the route of export subsidies, which is what this the Treasury accumulation was intended to achieve. You would still see foreign asset accumulation, but it would not be official reserves, but in private hands. They would be seen as speculative. The Germans (IMHO) have much better grounds for being pissed with the US, since they were a favorite dumping ground for late-cycle subprime debt. The Japanese never made an issue of the currency losses on their Treasury holdings as the yen appreciated, they understood the tradeoffs they were making.
And let us not forget that China did benefit considerably from its currency peg. Joseph Stiglitz has said that ALL the income gains in developing economies came from China alone (IIRC, over the last 10 years). In other words, while China improved its lot via its successful mercantilst policies, it appears to have pre-empted the opportunity for other lower-income economies to better themselves via trade.
This nastily enmeshed relationship is at a juncture where both the US and China will take some pain. Both sides have made decisions that were convenient at the time that are coming home to roost now.
I was responding to your previous sentence: “The usual way for indebted nations to get out from under their overhang is a partial REPUDIATION [my emphasis] of the debt (via defaults or restructuring) and a currency depreciation to help the debtor country avoid a deflationary shock and earn enough to pay off the debt that remains.” Actually, I dare say that in most cases, exchange rate depreciation leads to increased inflation rather than merely avoiding deflation. If the Fed genuinely holds US inflation to its (informal) internal target, I do not think that the Chinese have cause for complaint, whether they let the renminbi appreciate or allow Chinese inflation to produce a real appreciation.
The US is repudiating its debts via default, witness subprime, credit card, and other household debts. You are the one who suggested, contra anything in the post, that the repudiation applied to debts held by the Chinese.
Considering the title of the post and the fact that the opening sentence of the paragraph I refer to is “But the US-China row illustrates much deeper issues.”, I figured it was a reasonable assumption!
Look, you can blame other countries for America’s problems if you like, but I think those problems will not be solved until Americans stop looking for easy ways out (eg repudiating debt) and start trying to live with the competition they now face (eg stop complaining about competitors’ prices). I formed that view by witnessing the futility of such attitudes in Britain in the 1960s and 70s (eg I recall excuses that British cars could not compete with Japanese cars because their workers could live on a bowl of rice a day, strikes, devaluation, 20+% inflation etc) and then regained self-esteem after Mrs Thatcher’s reforms (only to throw it away again, but that’s another story). As huge numbers of people in developing countries learn to compete more effectively, and US influence tends towards its 5% share of the world’s population, America will have to accept the rest of the world as it finds it, not how America wants the world to be.
RebelEconomist: “problems will not be solved until Americans … stop complaining about competitors’ prices”
You write as though the current exchange rates are part of some natural order. The whole point is that it’s exactly the opposite – they’re severely manipulated.
“As huge numbers of people in developing countries learn to compete more effectively, and US influence tends towards its 5% share of the world’s population, America will have to accept the rest of the world as it finds it, not how America wants the world to be.”
Exactly, which is why the US will need to accept that the dollar no longer has as high purchasing power abroad as it once did. The rest of the world will also have to adjust to this new reality.
“The US is repudiating its debts via default, witness subprime, credit card, and other household debts. ”
In a recent link was an article in the New York times about how people who thought they had repudiated their debts via bankruptcy found their bank account plundered by the banks. This due to the bankruptcy reform law of 2005 (conveniently timed just before the subprime mess imploded as a commenter remarked), which allows confiscation of pay. Those who haven’t read it yet, please do: http://www.nytimes.com/2010/04/02/business/economy/02garnish.html?ref=business
The banks offload their toxic assets to the tax payers (Maiden Lane1,2,3; $ 1.25 trillion MBS, etc.) and give the keys of their malinvestment back to the creditors (e.g. BlackRock’s Stuyvesant building to CA pensionfund CALPERS).
So yes, US banks repudiate their debt, but NO, Americans can not repudiate their debt so easily.
“…..people who thought they had repudiated their debts via bankruptcy found their bank account plundered by the banks.” Outrageous! How dare the banks expect someone who has some money to expect them to give it up when they declare bankruptcy!
This is exactly the attitude that is destroying America’s financial moral fabric: “you were duped, just walk away”. Bankrupts should be grateful that they are no longer sent to places like the Marshalsea. But then I suppose there would be no room in America’s prisons because of all the African Americans serving years and years for some desperate crime.
RebelEconomist,
You’re absolutely right about the moral hazard we’ve introduced. It started with the general laws of incorporation in the 19th century, and the preposterous notion of limited liability. If you own part of a company then you should be liable for any and all debts that it incurs. Don’t like the fact that your $X stock investment has now become a $Y debt that you owe? Tough, next time invest more carefully.
Joseph Stiglitz has said that ALL the income gains in developing economies came from China alone (IIRC, over the last 10 years). In other words, while China improved its lot via its successful mercantilst policies, it appears to have pre-empted the opportunity for other lower-income economies to better themselves via trade.
I’ve long thought that preempting other competitors was the primary goal of China’s currency peg. And I do not believe this peg is particularly relevant to our de-industrial situation. The “structural” and other factors you cited are far more critical. Each and every one of these is completely encrusted by rent-seeking barnacles that also adhere to the Democratic Party.
The other day you commented on gloom inside the Beltway over the future of American manufacturing. I think your “Inside The Beltway” contacts’ (Democrats?) gloom is well-founded. The Democratic Party is less likely to self-reform in the needed directions than the Chinese Communist Party is to introduce “democratic liberalization”.
“And I do not believe this peg is particularly relevant to our de-industrial situation.”
Prices don’t matter?
At least with Japan in the 80’s quality was cited as a big factor along with price (there was some truth to the quality argument, but not all products are cars). With China nobody even pretends that anything other than price is the reason to manufacture there.
“The ‘structural’ and other factors you cited are far more critical. Each and every one of these is completely encrusted by rent-seeking barnacles that also adhere to the Democratic Party.”
Could you be a tad more specific about the “rent-seeking barnacles that encrust the Democratic Party” but presumably don’t afflict the Republican Party. As I recall much of our de-industrialization and soaring trade deficit occurred when we had a Republican president and a Republican controlled congress. Not that I’m unwilling to give bipartisan blame, but I have a lot of trouble seeing how the R’s are so much more virtuous in this regard than the D’s.
Alex,
Prices don’t matter?
Sure they do. And high US costs stem from more than just labor differentials. Higher quality used to and could again offset these.
At least with Japan in the 80’s quality was cited as a big factor along with price (there was some truth to the quality argument, but not all products are cars).
One summer between semesters at IU I worked as a summer temporary hire in a small auto parts factory in western Ohio. This was in the mid-1970s. This plant made brake linings. It was a UAW shop. The equipment was incredibly ancient and run down. Looking back I can say it represented the technology of the 1920s at the latest. I’m sure the natural gas furnace I loaded raw brake linings into was at least 40 years old by then.
The owners closed that plant the next year and moved the equipment to Mexico. The Japanese and Germans had the “advantage” of starting from a bombed-out industrial base which they then modernized until it was better on average than ours.
Not that the UAW’s professional agitator “leadership” didn’t contribute mightily to running everything into the ground. The overall shop environment was intentionally maintained in a state of permanent “class war”. Anyone with folding money to invest in equipment upgrades would think long and hard before putting it there. And since such upgrades would have involved workforce reductions…
With China nobody even pretends that anything other than price is the reason to manufacture there.
“Cost of goods sold” is the reason corporations manufacture in China. Direct labor costs are only one part of that. And they very frequently manufacture with the same factory equipment, overhauled, that was used in UAW plants in the 1970s.
Could you be a tad more specific about the “rent-seeking barnacles that encrust the Democratic Party” but presumably don’t afflict the Republican Party.
O.K. EEOC, EPA, OSHA, American Trial Lawyers Association. And let us not forget the original “buy low sell high” boyz (and girlz) on “Wall Street.” The constituencies surrounding these entities are all main pillars of the Democratic Party.
Then comes our almost completely dysfunctional and high cost “educational” system. NEA? 80% plus Democratic college faculties? Hello?
As I recall much of our de-industrialization and soaring trade deficit occurred when we had a Republican president and a Republican controlled congress. Not that I’m unwilling to give bipartisan blame, but I have a lot of trouble seeing how the R’s are so much more virtuous in this regard than the D’s.
The GOP doesn’t matter much right now since the USA has a Democratic President, House and Senate. See above very high cost rentier constituencies.
GOP historically? Faced with openly Democratic and partisanly hostile union leaderships (with plenty of Reagan Democrat defectors) the GOP followed a long term policy of benign neglect. This started back in Reagan’s time. Kevin Phillips, Lee Atwater, Ralph Reed, Newt Gingrich et al saw the Democrats marching like lemmings towards an industrial cliff. So they decided to lend them a helpful push. For the GOP “free trade” was a component of domestic political warfare.
(Note for Yves: “Free trade” was a late addition to the long time John Birch Society and Goldwaterite core emphasis on “free enterprise”. Free trade was always a very suspect addition mainly promoted by the Neocons. The Middle America core of the GOP always suspected “free trade” on nationalist grounds. Pat Buchanan easily articulates this permanent nationalist-economic outlook.
“Capitalism” and particularly “Finance Capitalism” was a third discrete entity that was always viewed as a work of Satan. I don’t know who your “advisors” were on this subject of GOP ideological development from the late 1950s on, but they got it wrong.)
charcad,
“One summer between semesters at IU I worked as a summer temporary hire in a small auto parts factory in western Ohio. This was in the mid-1970s.”
While I do respect the insight that comes from dirty hands experience (seriously, no snark) the problem is that it’s only one data point. Plenty on non-unionized US industry has also gotten shipped offshore. Not saying purely adversarial labor/management relations aren’t a problem (I blame both sides) but they’re far from the whole story of the downfall of American industry. How much unionization was there in electronics for example? Answer: not much.
“The Japanese and Germans had the “advantage” of starting from a bombed-out industrial base which they then modernized until it was better on average than ours.”
The war ended 65 years ago – we need a newer excuse for lack of investment in industrial capacity.
“EEOC, EPA, OSHA, American Trial Lawyers Association.”
And you think that say Germany doesn’t have those sorts of things (not to mention heavy unionization)? Yet they run a big trade surplus in manufacturing.
“And let us not forget the original “buy low sell high” boyz (and girlz) on “Wall Street.” The constituencies surrounding these entities are all main pillars of the Democratic Party.”
The Wall Street crowd has bought both parties.
“Then comes our almost completely dysfunctional and high cost “educational” system. NEA? 80% plus Democratic college faculties? Hello?”
US spending on education (as %/GDP) is within a few tenths of a percent of other developed countries. As an interesting tidbit we also have more engineers per capita than any other country except Israel. Poor education isn’t the problem.
“The GOP doesn’t matter much right now since the USA has a Democratic President, House and Senate. See above very high cost rentier constituencies.”
Right now? Things don’t change instantaneously. Remember say 2001-2006? Loads of deindustrialization.
Alex,
The war ended 65 years ago – we need a newer excuse for lack of investment in industrial capacity.
1. The economic policies advocated in the 1990s and now by well-known radical wingnut John Birch Society members like Robert Rubin, Larry Summers, Alan Greenspan and Ben Bernanke.
2. Self-described elite Ivy League management like Harvard Alumni Rick Wagoner, plus the continued ministrations of professional rabble rousers among ever shrinking numbers of GM, Chrysler and Ford and many other plants and employees.
http://en.wikipedia.org/wiki/Carla_Katz
Jon Corzine’s ex-squeeze. This is a classic example of what floats to the top of the Communications Workers of America. Judging from Katz’ wiki bio she apparently never worked one day in the field of the union she helps lead for money. “Professional agitator” is her only discernible career specialty and experience.
Professional agitators like Carla Katz are the explanation for the many millions of “Reagan Democrat” working class voters. Personnel of this caliber regularly create disruption to draw attention to themselves, or as a favor to political cronies who want to roll a business for money, or because labor racketeering mobsters order them to do so.
Disrupters on this scale are not tolerated in either Germany or Japan. Or in China.
3. The many years of bureaucratic delays, litigation (with hourly legal meters whirring by too fast to read), repeated high-price consultant studies and under the table political payola to the Rod Blagojeviches required to obtain any permit to do anything.
4. A lower education college system graduating hundreds of thousands of students with completely useless “degrees” in marketing, “human resource management” (filling out EEOC paperwork), “business”, “MBAs”, history, psych, sociology, you name it. All courtesy of those 80% Democratic lower education faculties raking in high five and six figure incomes. You know, the Great Progressive Consciences for whose teachings kids are seduced into taking out five and six figure student loans that aren’t even dischargeable in bankruptcy.
I got some x-rays recently in conjunction with a physical. While there I talked to the head x-ray tech, a pert young lady in her late 20s. She had a BS in marketing and a Masters in Human Resource Management, both from Clemson.
She finally got an Associates’ in Radiology from private Keiser University in an accelerated 14 months program. About 2/3’s of that was work study. This was to learn a usable skill and get a real paying job. Her assistants all had Keiser student badges on.
Neither Germany or Japan have anything close to this scale of misallocated capital.
You couldn’t be more wrong.
And in particular, the trend… accelerating quickly, is higher quality everything w/major reinvestment pushing breakthrough R&D cycles, while US is stuck in holding pattern waiting for a little trickle down from TARP bailouts.
I’m wondering about the effectiveness of bargaining between China’s currency and Iran’s nuclear problem. Will China forever play Iran card to fend off the pressure from the US on currency manipulation? I doubt it. The example is North Korea. It looks like North Korea is very obedient on China’s demand. Of course, it’s true in one sense, but North Koreans have deep suspicions on China under the surface, saying that China is using North Korea to win favor from the US. There is no assurance that Iranians don’t think like North Koreans. When China can no more play Iran card, I’m afraid that we see China’s currency matter spiral down to the point that the US and China can’t back down.
Seen through a “monarichal society” framework, where the US is striving towards global sovereignty over the international society of nations, it becomes clear that the New Republic article does little to illuminate what is really at stake in US / Chinese relations.
The most important thing to understand is that the US and China elites are running fundamentally different grand strategies to keep their domestic populations pacified and under control. The Chinese elite know that idle hands are the devils tools and so China has been playing from Solon’s pre-classical Athenian playbook since at least the Tiananmen Square protests of 1989. Solon, back in teh 6th Century BC, introduced a series of reforms to alleviate inevitable social tension created by the rising economic inequality that was deemed necessary for the capital accumulation the elites needed. The goal was to divert the people’s revolutionary energy towards commerce and/or city building. Solon for example in order to build up commerce, required farmers to find trades for their sons. This is reflected in the move of Chinese peasants into the coastal sweat shops. Solon also invited foreign tradesmen into Athens; this is similar to the Chinese politburo allowing Western corporations to set up factories in China. Solon also reformed the currency, etc. So when push comes to shove, the Chinese leadership will analyze the various problems they face through the prism of keeping their people busy.
The overall American strategic goal, on the other hand, is to further accumulate global sovereignty (Iran, North Korea) while continuing to cement the de facto sovereignty it already holds. To further these goals, the US will continue to allow unfettered access to US markets in exchange for further acceptance of US sovereignty by foreign leaders. Thus the US adopts a “bread and circuses” pacification campaign because, despite whatever gratuitous populist rhetoric is thrown out there, the US elites want to see their population’s idle hands busy consuming and not making.
In this light it is clear the New Republic’s idea that American elites were stupid enough to believe, or even actually desired, that China would become a “democracy” is laughable. The US wants first and foremost to consolidate global sovereignty and they are far more likely to get a small authoritarian Chinese elite to submit to the US will than they would in getting any potentially messy Chinese democratic government to submit. On climate change, the US has been against any international moves in this area since the Clinton administration, so they are more than happy to have the Chinese take the blame in this area. On currency revaluation the US will not push the Chinese to do anything that threatens the stability of the regime. Token changes are possible, but these could potentially be offset by further Chinese government subsidies in energy and raw materials to firms on the brink, in order to keep as many Chinese workers’ hands from going idle.
On the subject of the attitude of the EU towards China, Europe is far more likely to base any protection from Chinese imports on environmental factors (who can blame them after reading about the sulphurized Gypboard the Chinese are selling). The article never mentions this and they seem to be encouraging the EU to put all their eggs in the currency revaluation basket. With the Euro’s relative value all over the place in the last few years this is probably not the best approach for Europe to take. Plus I doubt European leaders take America seriously on this subject.
But what the US really does care about is extending its realm, especially into Iran. And in this area we see that China has indeed made some recent concessions. To me all the currency noise was just a way for the US to gain leverage on the Iranian issue.
As for China being worried about “looking tough” on the global stage for its domestic audience, the fact is that the Chinese media is even more controlled that the US media so the Chinese leadership have a decent amount of leeway here. But at the end of the day their international image is a subsidiary concern; job one for them is to keep those busy hands busy.
So from the US point of view an authoritarian regime in Beijing is just fine, as long as this regime respects US global authority. The democracy-talk is saved for those regimes who dare challenge US supremacy.
Good point on American imperialist intentions. The problem is most Americans do not understand imperialism destroys the freedom of its own people.
Chinese approach is far more sophisticated than simply keeping its people busy. You’d be surprised to know how much knowledge its two thousand years of imperial dominance affords current ruling elites in terms of psychological manipulation, brainwash, and all sorts of economic, political and mind control.
China is just as imperialistic as the US in its intentions, though given its current strength it is not assuming an overly aggressive posture.
Its subtle approach should not be mistaken for weakness or lack of firmness in its intentions. I do not think China will make any meaningful concessions on either Iran or North Korea, or currency valuations for that matter.
Yves wrote: These are an economic dead weight. They cannot be used domestically, and if China were to try to liquidate them, the dollar would fall, the outcome China is trying to avoid.
==============
The reaction to the assumed value of the USD caused by China liquidating some of their holdings would depend on many scenario’s leading up to a China partial liquidation. A run up in the dollar could precede any actions by China.
=======================
Yves: “The flip side is the US does have a nuclear option. Declaring China a currency manipulator and then following through with various trade restrictions would hurt China much more than the US”
=================
The two economies, nations and cultures are so vastly different, who would be hurt more is relative. We saw how jingoism, nationalism from Bush led this country into some very unattractive endevours. I don’t think we want to see Bushlike jingoism, nationalism leadership from the PRC. But we may, if need be.
=================
I am just thinking out aloud, assuming China yields to US pressure this time and revalues yuan with the results US trade deficit with China comes down. If US goes to start another big war with say Iran next year and incurs few thrillions as cost for this war resulting in another big deficit again. What is to stop the US from again accusing China or another country for alledgedly manipulating currency?
I’ve heard it argued, though I can’t recall exactly where, that the advertising and marketing of products add a lot more value to them, at least for products that are being produced today, than the actual production of them. Then this would mean, assuming that it is true, that products produced in China and then advertised and marketed in the US add more value to the American economy than it does to the Chinese economy, thus making the US trade deficit with China not nearly as enormous as it’s purported to be.
But to me, this only makes sense if you assume that consumers buy products mainly on how well they are advertised and marketed, not on how well they are made — something which I find hard to believe. Then again, I’m someone who believes that no amount of advertising and marketing will convince most consumers, even the ones who are pushovers, to buy a product if the product itself is no good. So in my view, there’s always more value in the actual production of products than there is in the advertising and marketing of them
Believe it.
More & more, there is nothing to guide purchasers other than most visible representations put before them… eg. advertising.
International distributors have spent huge $$ (especially in last decade) purchasing rights to well known, long established brand names, then put those names on what… at best, can be called generic products.
Look at TV’s alone… any idea what an “EMERSON” is? Hint… it’s a <a href="http://en.wikipedia.org/wiki/Funai"Funai… which is the same as a Sylvania, which is the same as (now in TV’s) Phillips/Magnavox and a few others. And if you research failure rates, warranties & service on them (etc etc), you’ll find they aren’t too good.
I learned this the hard way.
As I did w/BeautyRest (BR) electric blankets (same thing… almost): BR remains US owned company making their core product (mattresses), but they licensed their “brandname” all over the place, allowed it to be put on really baaaaaad products, collected licensing fees and dumped consumers who bought those things into black hole of no recourse.
Actually, I have a garage full of stuff like this, purchased over last +/- 5 years. Auto parts, same thing… if you maintain your own autos and don’t know what’s what, it’s a crap shoot.
The marketing of these things through Brand Names, w/companies willing to trade their Brand for $$ to nothing-other-than-distributors has pretty much become the American Way in business.
I’m a DIY’er (Do It Yourselfer) for almost everything… home repairs/auto/computer/food (garden) and much more. I like to have good stuff… stuff that lasts and functions well. I some time ago got to the point where, if we need something… anything, costing more than +/- $35, I dig until I find credible evidence pointing to a given product’s quality/utility.
And if I can’t find one, I make it… and that happens a lot.
We now have a neighborhood co-op to grow our own veggies, as “supply line” reliability has gotten so poor. I made mattress wife & I sleep on, after spending near $3k on 2 “pillow top” mattresses that were supposed to be top of the line firm, but collapsed like marsh mellow into guaranteed back ache platforms.
We spent $200 on a oval pot & pan rack (w/lighting) for our kitchen… COSTCO. Nice packaging, looked good on the box. I tore open kitchen ceiling, rewired, mounted joist connector to support the anticipated weight… and when I went to hang the thing, it was supported w/ 2 chains to either end only: eg., hang a pan on one side it tilts over completely. It was entirely unusable.
On & on, over and over… so it goes. I can tell you that, at this point, I (we) spend far less, are far more self sufficient, get better food and even energy supply… another similar story: nearly 80% of our household energy now comes from solar. And in getting that system in place, same thing: vendors around here knew next to nothing about functioning of their products. So I researched, found best technology in cells (German… by far), found a distributor, bought their cells and constructed our own panels.
Same w/batteries (Chinese the best), transformers (also Chinese), even paint to protect panels. Entire system (not counting my labor) cost about 1/3 what if would from local vendor, is nearly 3 times more efficient, and I have a much better guarantee of various parts dependability AND supply (broken/defective etc.).
All, because getting to market and subsequent advertising/marketing means profit, while effective functioning… even known poor functioning, is right-ok as long as balance sheet looks good.
This even translates to whole slew of medical stuff: if you have aging parents that need a walker, or maybe if they have parkinsons and need a useful tool to help them put on their socks, try going to your “medical supplier” and see what kind’a knowledge people behind the counter have:
* what are available walker dimensions? Very useful if person in need has narrow hallways to navigate, or often narrow bathroom doorways. In looking for one for my dad, I found (3 different suppliers) none of ’em… none, would show me their manufacturer’s catalogs. Each supplier had many on display, and deal was if you didn’t like what was there well then… fine, go away. They frankly would not even discuss fine details of need, nor did they seem interested. And their prices… $250-$300 for a device which, after I found (Google) *exactly* what we needed, I bought (China) for (from memory) +/- $115.
* Same w/sock-putter-on’er… they’ve all got a sleeve-on-a-rope, w/precise function comparable to spaghetti. Utterly useless for all but +/- 90% functional elder-parkinsons patients. And the prices… absurd, absolutely absurd (and don’t get me started on institutionalized medicare waste on this stuff). So I made one, not so hard (a weekend), and it works effortlessly. Ended up doing 1/2 dozen or so for friends w/parents in same boat.
On and on, and on. At this stage… actually, a good few years ago now, I’ve just accepted this a the landscape and long since made my adjustments.
Americans have been well conditioned to eat the menu on just about everything. And that alone is a layer of hypnosis which is hard to penetrate, let alone change.
There’s no evidence that the trade deficit will come down due to an increase in the value of the yuan over the dollar. Last time it happened out trade deficit INCREASED. http://economictimes.indiatimes.com/News/International-Business/China-stands-firm-on-yuan-as-US-ups-pressure/articleshow/5692851.cms?curpg=2
Yeah if the peg changes, it will cause
short term chaos. Really, imagine
everything at Walmart goes up in price
by some 20%. In China all those
factories that depend on export earnings
squeeze workers even tighter.
As for exports to China, well, I guess
there’s always raw materials. America
could become more like Canada or Australia.
I presume this is already happening.
Prior to the crash there was talk of
opening up Asian economies to American
‘financial services’ — today, it’s hard to
even suggest this without it sounding like
the punchline to a joke. Akin to
selling Union Carbide branded bug spray
in India.
Yves:
>> It may seem bizarre now, but I heard NO complaints from Japanese companies re the rise of the yen, including exporters. They were delighted with the purchasing power that it gave them overseas.
Yup, Chinese want money to go to cost structure (labor, suppliers etc.) instead of to profit (businessmen a.k.a. local oligarchs).
Yves:
>> China is running a fixed (well, now a dirty float) currency peg. You seem to forget this elephant in the room. That is a de facto across the board export subsidy.
Total BS. They are doing that to increase the volume of export items (which gives them employment). Otherwise, profit would increase (which goes to oligarchs) and cost structure would decrease (and employment would decrease).
Summary: total effect would be approximately the same (or even worse), but money will be reallocated from cost to profit.
P.S. One has to write formulas to understand it, it’s rather quantitative than qualitative concept.
Do you even understand what you are talking about? Sure doesn’t look like it. Export subsidies increase export volumes, that’s the point.
Look here, ‘retarded’:
Volume of units increases (decreases), prices per unit decreases (increases), monetary values (product of those two) are approximately unchanged (ignoring effect of the second-order variables as ‘insignificant’ for the big picture).
FT
Blaming China will not solve America’s problem
By Stephen Roach
………
But these adjustments must be framed in the multilateral context in which the imbalances exist. Just as China is one of more than 90 countries with which America runs trade deficits, US-China trade now represents only 12 per cent of total Chinese trade. It is wrong to fixate on a bilateral solution between these two nations to address their multilateral imbalances.
Yet some of America’s most prominent economists are claiming that a revaluation of the renminbi vis-à-vis the dollar would not only create more than 1m jobs in the US but that it would inject new vigour into an otherwise anaemic global recovery. Economists should know better. Changes in relative prices are the ultimate zero-sum game – they re-slice the pie rather than expand or shrink it.
…..
Roach is chairman of Morgan Stanley Asia. I’m sure that little op-ed won him lots of points with the Chinese bigwigs.
By Michael Pettis
How will US savings rate rise if you don’t penalize consumption?
There seems to be a thaw in the currency war. President Obama and President Hu had a long telephone conversation today and my guess is that the Treasury will hold off on naming China a currency manipulator in two weeks. I hate to be a pessimist, but this might be very temporary. Unless the US and China, with the involvement of Japan, Germany, and deficit Europe, don’t work out very quickly a real agreement, in which surplus countries make serious efforts to create domestic demand over the next several years, and to reduce their surpluses, in exchange for which the deficit countries agree to slow down their domestic adjustments, the fight will only be very temporarily postponed, and the next round will be much angrier.
Any agreement must deal with more than the RMB. It must involve the whole range of issues which depress consumption in the surplus countries and force it up in the deficit countries. That means that not just the currency, but also interest rates and credit expansion (and workers wages, if anyone dares to address that). I suspect an important part of the discussion will involve Chinese attempts to reduce savings by improving the social safety net, since this is widely believed to be a reason for China’s high savings, but as I have written many times, I think this issue is largely irrelevant.
………”
Really baaaaaaad and misleading article/post, building one fallacy upon another. From “China has emerged as the principal obstacle to multilateral efforts to stop Iran from acquiring nuclear weapons”, to assumptions on what that means, extrapolated back to your favorite “China is currency manipulator” theme, etc. etc.
A few corrections:
* Actually, Russia has been biggest UN obstacle. They have recently made some concession, but minor and not close to what US (Israel?) wants. Interestingly, but not mentioned much publicly, Russia is on verge of delivering missile defense to Iran in anticipation of Israeli attack on their burgeoning nuke program.
* Among (IMO) most costly of US attributes is general public’s short and well massaged memory. Specifically, in this Iran issue (“who’s your daddy!!!”), US neocons were itching to expand Iraq invasion to Iran. The threats were very public, and directly attributable to Likud’niks w/in BuchCo (Wolfowitz/Ledeen/Feith etc.). The noise was loud enough that Russia put a Destoryer convoy off Persian coast, w/clear statements they would defend against such action. This was at a time just preceeding Iranian elections, w/slow but steady progress towards just the kind of elected officials west has long said they wanted there. Yet this “threat” stoked and fed well justified (CIA engineered Mossadeq coup, install Shaw as pawn for cheap Iran oil for 30 yrs, etc etc.) fears of US (again) subjugation of Iranian internal processes, resulting in shift to election of Akminajad… a guy who was given little chance of being elected without this sword rattling.
* US has overlooked most everything to it’s favored oil suppliers, regardless of said supplier’s policies. We flew Bin Laden’s family out’a here secretly after 9/11, a flight which, as time goes by, seems to reveal whole lot more shady 9-11 charactars than initially “leaked”. We produced fake satelite photos to the world showing Sadam’s troups on Saudi border (they weren’t there) in order to gain Saudi approval for Iraq invasion “liberation”. And how many of those 9-11 hijackers came from SA, yet BushCo somehow sold to US that Sadam was the threat? And oh yea, didn’t Iraq have a few undeveloped oil fields? But we wouldn’t go in there for oil, would we… ///???
* And lest we forget, FOIA docs are pretty clear CIA not just turned it’s head, but aided and abetted both Kahn’s Pakistani nuke development and exportation of the technology. We turned our heads, and in fact supported (deals for GE by the way, under BushCo) India’s nuke development… more or less gave ’em a pass. And now… w/Israel pointing it’s big guns towards Iran, US having set in motion (again, Mossadeq >> Shah process) what gave birth, cause and now over 50 years of fuel to Islamic militancy/anti-US “stuff”, followed by using Sadam as our proxy in 10+ yr Iran (anti Khomeni) war, and now the Iraq fiasco w/(literally) millions of refugees all over the region (and every other ripple disruption)… somehow, someway, Iran/Russia are made to be bad guys in this discussion of yours because their oil supplier (especially China) is not afforded the same get-out-of-jail cards US’ suppliers get… eg. 100% pass.
And then, there’s the whole US torture nation thing, very visible to everyone in the world w/TV & internet except… USA’sians!!!
With all due respect Yves, IMO this whole line of reasoning is bs gobbledy gook. If followed, it’s going to make matters worse. Sooner or later, if US (Americans) ever are to regain a firm foundation and a little respect around the world (much less economic recovery as opposed to fudging econ activity w/currency slight of hand), there’s going to have to be a little national soul searching and accountability in these matters.
US “justice” doesn’t mean a whole lot around the globe right now, and anyone here who doesn’t understand that…. much less why, is deluding themselves.