Yeah? So What?
Here's Paul Krugman:
China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.So what would happen of the U.S,. Government got serious about stopping the Chinese from illegally subsidizing its exports or threatened to stop selling bonds to them?
And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
So what should we be doing? U.S. officials have tried to reason with their Chinese counterparts, arguing that a stronger currency would be in China’s own interest. They’re right about that: an undervalued currency promotes inflation, erodes the real wages of Chinese workers and squanders Chinese resources. But while currency manipulation is bad for China as a whole, it’s good for politically influential Chinese companies — many of them state-owned. And so the currency manipulation goes on.
Clearly, nothing will happen until or unless the United States shows that it’s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy. So why has such action never been on the table?
One answer, as I’ve already suggested, is fear of what would happen if the Chinese stopped buying American bonds. But this fear is completely misplaced: in a world awash with excess savings, we don’t need China’s money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell.
It’s true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive.
It’s true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive. Ask the Japanese, who want China to stop buying their bonds because those purchases are driving up the yen.This is the source of a lot of the American jobs which have been exported to other countries. The U.S. is letting China get away with this crap not because of U.S. power but because of U.S. weakness.
Aside from unjustified financial fears, there’s a more sinister cause of U.S. passivity: business fear of Chinese retaliation.
Consider a related issue: the clearly illegal subsidies China provides to its clean-energy industry. These subsidies should have led to a formal complaint from American businesses; in fact, the only organization willing to file a complaint was the steelworkers union. Why? As The Times reported, “multinational companies and trade associations in the clean energy business, as in many other industries, have been wary of filing trade cases, fearing Chinese officials’ reputation for retaliating against joint ventures in their country and potentially denying market access to any company that takes sides against China.”
Similar intimidation has surely helped discourage action on the currency front. So this is a good time to remember that what’s good for multinational companies is often bad for America, especially its workers.
Yet as long as it goes on, America gets weaker and our unemployment rate stays high.
As long as our unemployment rate remains high, our government is under threat of being replaced. You'd think the White House would see that it was in their interest to export the unemployment from the U.S. back to China and to make their government deal with local unemployment.
Maybe after the November elections?
Not likely, though. The Obama Treasury is filled with Wall Street Bankers and their banks would be threatened by aggressive moves against China. Wall Street still runs the American government financial policy, doesn't it?
I'm going to speculate further. This problem started at least as early as the early Bush administration. Bush dared not pick a fight because he had to finance his idiotic war in Iraq without raising taxes. Then Obama entered office.
Of course, the Bush economy collapsed four months before Obama took office. The Second Great Depression was clearly coming. So Obama built on the plans Henry Paulson put into place (while Bush took his vacation until the inauguration) and was able to limit the damage to no more that the Great Recession - the most extreme Recession since the 1930's. But that was just the first and surprising part of Obama's problems.
He was elected on the promise of getting a national health care plan passed and in spite of immediate financial problems, America's long-term financial problems all centered on the failed health care system. The anticipated financial problems could not be fixed without starting with health care. To top it all off the Republicans made it clear that they were going to block every significant action the Democrats and Obama took. China was a problem, but it had to wait. There's really room in the Presidency for only one, perhaps two, major problems at a time. Everything else that needs his attention has to wait its turn.
Health care dragged on too long. But part of that was Obama getting his Presidential legs under him after taking office. That happens to every President. And this year has been an election year with fangs. Also, the economic fixes were not big enough (as predicted by Krugman and others.)
But now the central problem really is the unemployment rate, and China's currency manipulations are central to that. So if nothing immediate (like another massive Oil Gusher a mile down in the Gulf of Mexico or a hurricane or an earthquake) doesn't appear in the near future and the election gets finished soon, then China's currency manipulation may get its well-deserved turn.