Posted on 05/17/2005 6:34:45 PM PDT by familyop
NEW YORK - The Bush administration has put China on notice that it expects a revaluation of the yuan within six months.
In its biannual report to Congress on exchange rates and trade, the U.S. Treasury said China will be at risk of being accused of unfairly manipulating its exchange rate if it doesn't act swiftly to abandon its fixed exchange rate against the dollar.
For the past ten years, the yuan has been pegged to trade in a narrow band around $8.28. Beijing has repeatedly said it will widen the band, making the yuan more flexible in time, but the head of China's central bank denied again last week that a revaluation was imminent.
The Treasury report can be seen as the administration's response to a bill put forward by Senator Charles Schumer, D-N.Y., that would impose heavy sanctions if China does not revalue in the next six months.
The report and a statement from U.S. Treasury Secretary John Snow played a major role in turning around U.S. stocks Tuesday afternoon after they had been hammered on inflation fears when strong Producer Price Index and monthly housing starts numbers were posted before trading began. The Dow Jones Industrial Average posted a second straight day of gains--rising 79.59 points to 10,331.88.
The Treasury report makes clear that China would meet the requirements of being named a currency manipulator if there is no substantial change in its currency regime within six months.
"It is widely accepted that China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions," the Treasury report says.
"It is critical that we address the issues of imbalances aggressively," said Snow's statement. "China's rigid currency regime has become highly distortionary. It poses risks to the health of the Chinese economy, such as sowing the seeds for excess liquidity creation, asset price inflation, large speculative capital flows and overinvestment," he added.
The Treasury is now saying that China should take an immediate transitionary step towards a full float of its currency, but that Beijing doesn't need to move immediately to a full floating rate regime. This could be as straightforward as a significant widening of the yuan's trading band.
U.S. Congressmen and U.S. export manufactures would welcome an immediate signal of intent to allay their concerns about the U.S. trade deficit with China which they argue is being increased by what they say is China's artificially cheap currency.
China's bilateral trade surplus with the U.S. expanded in the second half of 2004 to $93.5 billion, compared to $70.2 billion in the same period the previous year.
China's global current account surplus had increased to $40 billion in the second half of last year, or 4.2% of gross domestic product--roughly twice as large as the surplus in the second half of 2003.
Though China has already been working on financial market deregulation for two years, preparing to loosen the yuan's peg to the dollar, and has gradually sought to give its financial institutions more experience operating in foreign exchange markets. China's capital markets would require substantial further liberalization to sustain the impact of a fully free float.
Further interest-rate liberalization is also crucial. If the central bank loses its exchange-rate control over monetary policy, it needs to be able to affect either of the only two alternative policy tools: a target interest rate or a target inflation rate, and targeting the latter is impractical.
Earlier this month, Vice Finance Minister Li Yong told the annual meeting of the Asian Development Bank meeting that China had to first get its market mechanisms in order and repair its corruption-ridden and bad-debt burdened banking system.
Many in Congress have been critical of the administration softly jawboning the Chinese authorities over the issue of the yuan. But the administration has been reluctant to take a more forceful approach, in public at least, for fear that the Chinese authorities won't want to be seen within China as bowing to foreign pressure, and particularly not American and Japanese pressure. (Tokyo has made similar calls for revaluation.)
Note that the Treasury report is diplomatically couched in the language of global economic imbalances rather than the bilateral U.S.-China relationship,
"The fixed exchange rate China now maintains is a substantial distortion to world markets, blocking the price mechanism and impeding adjustment of international balances. It is also a source of large and increasing risk to the Chinese economy," the report concludes.
The Chinese are laughing all the way to the bank and the suckers (free trade crowd) are wondering why.
Source?
most US corporates are more loyal to current social anarchy than they are to our country
Define with examples that demonstrates "most", please.
Yes.
Economic warfare is a very real possibility given the illogical nature of those statistics.
I never deny that, in fact, this type of warfare has gone on between nation states for thousands of years.
My points are simple:
*The use of artificial economics will always collapse over time.
*China cannot continue this approach without eventually paying the price. They will.
*Our economy is too wide and too deep to be impacted in the way a few here are suggesting.
*We need to continue to lead through innovation and our unique capitalist culture.
*We should continue to pressure the Chicom govt into collapse and cultivate China as our ally.
Although I understand the concern about the current 'unfairness' of the competition, most of the arguements presented here are emotional and without substance or data to back them up.
We have plenty of issues here at home we can fix that will have much more impact on our competitiveness now and in the future.
I was replying to a post that was talking about how the Chinese have been doing this for thousands of years and know more about it than us. I was pointing out that they had us beat 4,000 years ago, but in the last several years, we've been on top. They are still haunted by the ghost of Mao. They are becoming more like us, but they are still far behind.
You forgot think tank whores and MSM idiots.
That's a different animal, doesn't have anything to do with jobs here or our standard of living, though. It's just a question of whether Kodak's making a good investment decision. Maybe it is, maybe it isn't. Kodak investors (like me) are taking a risk.
On the other hand, I don't know that Kodak's investment in China is so significant that you need to lose sleep over it. Kodak is making money today, largely because of that investment. It could not make money competing against the Japanese with American labor, but using Chinese labor has turned things around. That leaves its American based workforce in the business of making executive decisions, and providing technological expertise, but that's where the money is. You can't make a living compatible with American standards by making cameras as a factory worker.
However, the Chinese can make a living compatible with Chinese standards by making cameras. So let them make the cameras, and let us make the decisions.
In response to your first comment, the devaluation of labor in Country One automatically devalues labor in Country Two, the importer.
THAT'S how harm is done to Country Two, as DOL stats will demonstrate.
Quote: So they'd be giving their stuff to us for free.
Why is that bad?
Apparantly your job is not at risk to be sent to china?
There's more to an economy than capital investments.
There's consumables. China has to import a fair amount of those.
If they default on their loans, then their ability to pay for those consumables comes into question. Nobody is going to release oil and other consumable items for delivery to the Chinese until they have money in hand.
Finally, there is this thing called "the United States Navy."
We may decide to exact payment by seizing oil tankers and other ships headed for China. After all, the oil has been paid for, cash on the barrel, because nobody in their right mind will extend credit to a known deadbeat.
Quote: Didn't we hear the exact same thing about Japan in the 1980's? Please...
1.)We did not uproot entire industries and send them to Japan.
2.)Also for the most part Japan beat us on quality not price. Their wages were comparable to ours. We are being beaten by china with 80 cent per hour wages.
Not if they give me free TVs, free cameras, and free clothes.
If I can live off their efforts for free, why do I need a job?
Quote: Just because we lose some of the lower value manufacturing industries
I am a realist. A society needs fairly decent jobs for people with lower HS education and or lack of ambition. Not everyone is a Bill Gates in intellect or ambition.
By making these people take McJobs you are creating a permanent underclass that will be a burden on socity through crime and welfare.
Don't forget the "financial economy". An ever-increasing portion of the economy consists of nothing more than people trading paper (such as mortgages) all day long.
Jim Puplava made this point on his show over at financialsense.com. If you get a chance, I think you might enjoy listening to his commentary over there.
We Americans have been subsidizing the Chicoms for way too long. If they want to act like a world player, then let them float their currency, otherwise they can take a flying leap...
re: post #20 and #30.
great answers...thanks for making a complicated situation easier to understand.
During the Cold War the progressives and the internationalist Rockefeller Republican "free traders" argued strongly for trade with the Soviet Union. We must trade and help the "moderates" lest we play into the hands of the "hard liners" and we cause a war, they warned.
Better minds prevailed perhaps because those very same minds had experience defeating enemies. Not so today and thus we should be reminded that, extremism in the defense of liberty is no vice.
China, a people with no history of a social contract and respect for the individual, is going to become a western-style, free market democracy? All we have to do is more "free trade" transfer of technology, wealth, and jobs? Sure.
I think that this article
http://www.bolshevik.org/1917/no26/no26china.html
published by the International Bolshevik Tendency (IBT) describes what is more likely to happen. I hope so.
To wit, a second communist revolution ending Deng's version of Lenin's New Economic Plan (NEP). The reference to NEP is mine.
End the corruption of "socialism with Chinese characteristics" the revolutionary way, exterminate the new "landlords" and the traitors to the Revolution.
Then seize what the western "useful idiots" have provided and continue the march to international socialism.
Let them defeat themselves fighting for two versions of socialism. We have no will to do it, we rush to sell them rope.
The IBT is a revolutionary socialist organization founded by former cadres of the international Spartacist tendency (today the International Communist League).
As the history teaches, smashing things ends in, well, in more smashing.
If it were up to me I would impose at first small NON punitive tariff like 5 to 10% on goods and services. I would use money from it to help American producers and workers and see how the trade deficit shrinks (probably the budget deficit would ease).
I would tell to China - we are still your friends and you keep the currency peg the way you wish.
Then after seeing the results later I would increase the tariff again (maybe in few steps) to balance the trade deficit and reduce outsourcing.
This would be good for China and America and EVERYONE else. Trade would IMPROVE! It is WTO and international bureaucracies which are not good for anybody.
Electronics? Transistors? Radios? TV's? Cameras? These were equally as uprooted and "sent" to Japan as any industry is being 'uprooted' today. Much of that was actually in the 70's as well as the 80's.
2.)Also for the most part Japan beat us on quality not price. Their wages were comparable to ours. We are being beaten by china with 80 cent per hour wages.
Japan was a low cost producer in the 50's-60's-70's...only when they became successful in the higher value industries AND improved their quality levels did they become an economic power.
Then what happened? Because industry became wealthy, the cost of living standards rose in Japan, wages were increased significantly, starting in the late 70's through the 90's, and Japan had to 'outsource' manufacturing to Korea, Malaysia, and China to stay competitive.
These are economic cycles that will not be broken by China, especially as they continue to subsidize any of the three (3) 'legs of the stool'...currency; industry; citizenry. Today, they primarily subsidize their currency with a low peg. Once that begins to loosen, the other legs will have to share the burden, and they will see a similar cycle as Japan went through, only to a larger extent.
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