March 23rd, 2010
02:54 AM GMT
Share this on:

The tit-for-tat battle between Beijing and Google may be getting the headlines today, but it’s only an overture for the real battle brewing between China and the West.

On Capitol Hill, a group of lawmakers stood before reporters last week and warned about the evils of China’s undervalued currency, the yuan. Armed with new legislation to punish China, Democratic Senator Charles Schumer said the U.S. was ‘fed up’ with Beijing’s policies, which he says is costing the U.S. jobs, hampering the recovery and fueling its massive trade deficit.

The new bill was the latest in a series of recent and very public moves intended to press China to raise the value of the yuan.

But will these pressure tactics succeed? Probably not. If there is one thing Beijing has been consistent about, it’s that it rarely bows to foreign pressure, especially on issues affecting its economy. And any move to appease the U.S. would be interpreted as a sign of weakness, which Beijing has been reluctant to show.

And what if China did act? Would that solve the problems facing the U.S. economy? Again, probably not.

As economist Stephen Roach of Morgan Stanley said recently while being interviewed on another network, the U.S. isn’t facing a ‘China problem,’ but rather a domestic one. And targeting China is the result of Washington refusing to look into the mirror.

Other economists have also said a stronger yuan will do little to address a high U.S. unemployment rate or a massive trade deficit. And if anything, a stronger yuan would likely do nothing more than stoke U.S. inflation.

And don’t underestimate the weight behind China’s threats to retaliate, should the U.S. follow through with sanctions. Like it or not, China is becoming the driver of the global economy. And that has huge implications for America Inc. With companies like General Motors and Boeing increasingly looking to China for business, a warning from China should give reason to worry.

In fact, signs of a worsening political relationship may already be working its way into business relations. A survey from the American Chamber of Commerce showed a growing number of U.S. companies say they feel unwelcome in China and face discriminatory government policies.

There is little to be hopeful about as trade tensions escalate. The next big volley will likely come April 15th. That's when the U.S. Treasury is to consider whether to label China a currency manipulator in its semi-annual report.  And if many lawmakers on Capitol Hill have their way, they just might.



soundoff (52 Responses)
  1. amyhu

    Chinese people like to enjoy being praised to be a people of superpower. Please give them what they want to have. It does not matter whether the outside world likes it or not. That is the way it is for a great people which sent somtheing up to the moon 50 years after the Russian did. Bravo!

    March 23, 2010 at 5:32 am |
  2. Doug Renner

    The US government perennially grants China the trading status of "Most Favored Nation" while US businesses willingly import every product and many foods from China. Yet our politicians complain that "Beijing's policies are costing the U.S. jobs?" Clearly such blame is misplaced.

    The American national debt curve has been exponential for years now. Were it not for China's willingness to purchase US Treasury Bonds, the US Government would not even have the money to operate. Thanks to the willingness of China and other nations to purchase American currency, a total collapse of the US Dollar continues to be postponed. Clearly, our politicians are in no position to criticize how China manages her own currency.

    March 23, 2010 at 6:06 am |
  3. AAmit

    Well West can not afford to give away it's values in such tension. It Will be pitty to watch it loosing it's identity on isues like humanitarity, right to speak your thoughts. Open enviornment. If it thinks only as economic Company, sorry there Will be no hope to save it from further downfall.

    March 23, 2010 at 7:48 am |
  4. rgg

    Everyone was a point in this argument, but no one seems to have them all.
    Btw..Stephen Roach, is a trained economist, but is now head of Morgan Stanley Asia...how likely is he to say something that Beijing wouldn't like?
    The bottom line is...the west is in a bind and the only reason China is not is that they didn't buy into the same financial models. Granted they have their own financial skeletons in the closet, but they have the money and we don't. Don't whinge when you bet and lost, get smarter and make it back.....that's how free markets work.

    March 23, 2010 at 11:06 am |
  5. Chinaman

    Doug Renner =- MFN was something given to China BEFORE entry into the WTO. There was nothing "Most Favoured" about MFN. It just meant that China was privy to the benefits of most of the other nations.

    AAmit – what the heck is "humanitarity"

    I love the education level of netizens

    March 23, 2010 at 12:23 pm |
  6. Owen

    amyhu , not all the Chinese are the way you said.

    March 23, 2010 at 12:23 pm |
  7. Victor Purinton, Cambridge, MA

    China is making tons of money. Does this make its financial model better than those in the west?

    Well, organized crime syndicates make a lot of money, too.

    China continues to be an oppressive, totalitarian state that deprives its citizens of fundamental human rights. I'll take freedom and financial struggle any day.

    March 23, 2010 at 3:11 pm |
  8. MD

    Keep in mind countries such as China, Russia, India have economically
    been at the bottom for years, the only way they can go is up. They have
    nothing to lose. Where as we have lost , let us not lose it all by being
    short sighted.

    March 23, 2010 at 3:39 pm |
  9. elenore,michigan

    Yes let's believe another Corporate lacky.Because they really have the best interests of Americans at heart.They don't care where their money comes from or who it hurts,even their own people.Morgan Stanley as a whole has a history of screwing their own citizens,getting involved in wars and government policies that have ruined Americans for years since the old Morgan Stanley himself was around,look at a history of the bankers who work for that company,it disturbing.

    March 23, 2010 at 4:00 pm |
  10. elenore,michigan

    Why should US have to spend more.Why not China sell it's own goods to Chinese who have money.Oh that's right people don't have property or business ownership in China and the money is in only a few bank accounts because the have no middle class.The U.S. should waste4 more money,that's nonsense.There is no free trade with China and if our Politicians don't fix that than voters will.This guy is trying not to scare investors as they move productions and assets out of China.

    March 23, 2010 at 4:10 pm |
  11. mike EE

    bravo rgg, you hit the nail on the head.

    March 23, 2010 at 5:39 pm |
  12. nelco

    Totally agree with Doug Renner!

    March 23, 2010 at 8:56 pm |
  13. conrad

    water always finds its own level. the west has a life style it cannot afford and asia is trying to catch up. In 20-30 years it will level out and a new currency will emerge. in the meantime most of the pain will be in the west. I wonder how the politians will spin this one, to get elected?

    March 23, 2010 at 11:04 pm |
  14. Doug Renner

    @Chinaman: c/grants/granted/. Does that help you to understand the substance of my assertions? Also, user AAMIT's "humanitarity" is what we call a typographical error. It happens to everyone other than professional typists.

    March 24, 2010 at 12:17 am |
  15. Ken Lawson

    I totally agree Google is just part of the bigger issue relating to China, the yaun plus I prefer to putting a end of cheap, poor quality products entering North America namely the USA and Canada. As a Conservative – Reformer our government which includes the Progressives side of the party I do not trust and will never be a member. Jim Flaherty has no guts to stand up to China like he should be, he is even gutless to stand up to our Charter Banks. Im totally against China investing in the Oil Sands of Alberta or any of our mineral mines in British Columbians. Google a great job of mapping our streets. I do not know how our American neighbours feel about China, but if these imports we stoped by law, better quality USA manufactured products would hit the market and employ more Americans, I do not understand why this has not been made Law. I just cannot see how you can make money in China. I have lived there, it is not worth, your personal time and money unless you have money to burn.

    March 24, 2010 at 5:53 am |
  16. markmarks

    “Great Firewall of China” …that’s a good one. I support Google’s decision a hundred percent. I really admire how they respect freedom in the internet, and it's I guess the reason everyone loves Google. Having censorship in this age, and on a national level is insane. I really thoughtChina knew better, and would eventually get it. My miss, t6his was cool…

    http://ketiva.com/Computers_and_Internet/google_divides_web_users_by_leaving_china.html

    March 24, 2010 at 7:27 am |
  17. LAC

    I respectfully beg to differ with Victor Purinton regarding freedoms. I think that the evidence shows that the citizens of the U.S. face massive federal and state regulations that eat away at freedoms (inevitable tax increases is yet another example), a Federal reserve that is run by private bankers and is not controlled by congress, and a massive debt that has reached the saturation point and is outside the realm of control of the average citizen because elected officials fear the end of their terms more than they do the results of their careless leadership. Freedoms? There are fewer and fewer to speak of, quite frankly. China, one can argue, is slowly heading in the right direction (most certainly economically, democratically less so) while the U.S. most certainly is not - more accurately - is rapidly retreating from the Constitution, it foundation. China's defense of its currency is well within their rights. I concur completely with Mr. Renner's comments as well.

    March 24, 2010 at 11:41 am |
  18. Luis Guimaraes

    The big mistery of our times is why our politicians in UE and USA have been on the side of the multinationals and the Chinese against ordinary people,the small and medium companies,the stable jobs and the preservation of our culture and wealth.
    The fact that we have now big deficits,bankrupcies by the million and record unemployement was a forecastable scenario turned in reality.
    It is today forecastable in the West a massive poverty increase,dispair and civil unrest if this policies continue.The West has to say enought is enought.
    Instead of waiting for the benevolence of Chinese in revaluating their yuan,why can we not simply tax all chinese goods 30 % ?Would this not be good for our deficits?Would this not be good for the protection of our Companies and jobs ?
    Why wait ?

    March 24, 2010 at 12:30 pm |
  19. sss

    but the us also have these kind of police and every nation just attempt to protect the interest of their own ~~~~~~

    March 24, 2010 at 2:57 pm |
  20. Chinaren

    Elenore,

    Perhaps you should take a trip outside of Michigan and learn something about the world before making comments like:

    ".Oh that's right people don't have property or business ownership in China"

    Really? Wow, you'd better tell that to all the homeowners over here with businesses then.

    For a glimpse of what China is like, you can read my blog: http://www.ChinarensBlog.com

    China is the most capitalist country I've ever been to!

    March 25, 2010 at 12:31 am |
  21. USless

    Two things are going to happen, oil will no longer be sold in US dollars and the US dollar will collapse under a mountain of debt.

    March 25, 2010 at 3:51 am |
  22. BSTeh

    Roach's comment that ' the US isn't facing a 'China problem' but rather a domestic one....' is fast gaining currency (no pun intended) with American analysts like Jim O'Neill (Chief Economist with Goldman Sachs) and Robert Pozen (Senior lecturer at Harvard Business School).

    Ken Lawton's argues that better quality US manufactured products should be allowed to hit the market and create US employment without realising that the top export item ( by value) to China in January 2010 is Soybean which is heavily subsidised by the US Govt (Source:US Census Bureau).

    Ever wonder why China's top and 4th largest export items to the US, the world's most technologically advanced nation, are computers and computer accessories & peripherals ? Is it because the manufacturers are US owned companies in China contributing to China's trade surplus but made artificial when these companies repatriate their profits home?

    Would it create jobs in the US if the American public were forced to buy more expensive US made computers, say, or the multitude of household products that form 85% of their imports from China?

    Again, American consumers would be forced to pay more for toys made by Mattel in the US than those made in China to the specifications of Mattel Inc.

    Would Warren Buffet agree to bottle Coca-cola only in the US and then try to export to the whole world at a cost that would eventually cost them their market share? Mr.Lawton, you could appeal to Mr.Buffet to be patriotic and not maximise profit by creating jobs overseas.

    I can imagine Mr.Buffet smiling uncommittedly while leaving it to your politicians to make all the sound bites to appease your frustration and anger. Are you happy now?

    Or are you willing to sacrifice and accept lower wages to reduce costs for your local manufacturers and at the same time reduce your disposable income and curtail wanton consumerism which in turn will drive your economy into a tailspin, lower your GDP and cause unemployment?

    Only this time, you cannot push the blame onto anybody else, can you? Or you could be like Mr. Victor Puriton of Cambridge who will take 'freedom and financial struggle any day' ?

    Or you can take the stand of the Greek tragedy of not sacrificing for any national austerity measures to bail out your own country but shamelessly leaving it to your European neighbours to bail you instead?

    Unfortunately, I doubt if the Europeans are in a very good situation to bail you out when Belgium, Austria, Ireland, Norway, Italy, the Netherlands, France, Germany and Finland has each more foreign debts per capita than the US.

    Would you deign to try a more holistic Eastern approach ( not everything from the East is evil, mind you) and cure the roots of your problems rather then look for a typical Western quick fix to your symptoms?

    The US has the greatest gene pool in the world, surely someone can identify your problems and can then prescribe more lasting solutions.
    Or do you still believe China's currency, generated by a US3 trillion economy, is the silver bullet to the US15 trillion US economy's ills?

    You have more faith in your senators ( with the mid-term elections round the corner) than your own financial experts barring Paul Krugman ( I used to look forward to his articles until he sold out and jumped on the bandwagon generalising on the need to revalue the RMB without specifying how this will solve US economic problems. He did not even bother to analyse and identify US's root issues.) ?

    All I can say is 'Wow'.

    March 25, 2010 at 8:36 am |
  23. Andrew White

    In a comity of nations, doing business by rules in a fair way, one nation cheating to gain for itself is wrong. China has precisely done that. In a class of students, if a student demands all the answers for the test just because he does not want to study and says can't appear in the test otherwise and all others were to take the test the usual way. Who will get the highest marks, even if its gotten by cheating? That cheater is China.

    March 25, 2010 at 9:08 am |
  24. chinajay

    There are so many educated naive people supporting the naive politicians who are more interested to retain and warm his/her seats than facing reality. I love to see the US declaring a trade sanction on China and see the job creation numbers and inflation in the US. It is about time for the US interest rate curve to turnaournd and go back to 20%. For God's sake don't let politicans retain their seats for the sake of keeping it warm. Elect the bold leaders like the great American leaders a century ago and deal with the problem squarely for the next generation and for a better future.

    March 25, 2010 at 3:02 pm |
  25. Avrailer (Jeremii)

    well at least your not all going to cyberkill each other like in the tech 101 blog.. hehe i did my best to get them to understand that violence isn't always a resort. sometimes you can be better than someone by not killing or fighting. China does have extremely acrobatic people. good job china!
    as for america... i wish i wasn't born here. YOUR ALL ARROGANT.(or most of you are anyway).
    its actually hard for me to say something good about america...
    at least you got obama!

    March 25, 2010 at 7:48 pm |
  26. Mike

    Is it unfair to ask china to allow it's currency to float freely? Is there a single WTO member that doesn't do that? Besides china? The government manipulated yuan puts other manufacturing nations at a huge disadvantage. To say otherwise is either manipulation of the media, a misunderstanding of facts or simply a lie. To say that chinese manipulation of their currency has not effected US jobs and subsequently the economy is ridiculous. Look no further than the American furniture industry. Or what's left of it. Completely decimated by chinese slave labor and artificially repressed currency.

    Doug Renner and the his pr buddies are obvious chinaphiles.

    March 26, 2010 at 6:34 pm |
  27. Strangewalk

    Every entity involved in creating the great globalization nightmare screwed up, driven by lust for immediate gratification and short term, quick gains. What we have now is a bomb that's ready to blow up in everyone's face. Soon we'll see trade wars, followed by real wars. But, the way things are now structured, you can't shoot your enemy without hurting yourself.

    BTW, the Americans deserve a depression of massive damage–everywhere you go in this country, the people doing the real, honest work are immigrants, usually from Latin America. The natural born Americans are sitting on their butts enjoying streaming internet porn, getting fatter eating poisoned fast food while collecting unemployment. Returning to work would just give them an opportunity to sue their employers–for any reason, or no reason.

    I've been in China for a long time–in some ways it's the same here as anywhere else. About 10% of the people strive and do all the work, while the other 90% goes along for the ride. Another thing you can see here–the country developed way too fast, they built 10 houses in the time that good planning, care and concern should have produced one house of quality, and much of this explosive, boom growth is unbelievably shoddy and unsustainable. Also, the Chinese will have hell to pay for the way they've totally destroyed their environment–sooner rather than later.

    We've reached the end point, this time there's no way out.

    March 26, 2010 at 11:36 pm |
  28. cc

    Why blame other countries for ours own problems?
    We can not compete anymore so we try to tell other countries how to run their economies to our benefit?
    Someone is really not being realistic or maybe just plainly lost their mind...

    March 26, 2010 at 11:46 pm |
  29. koky

    why look onther back when you have a problem at home.ask your politicain where are they put their dollar and did all of them invest all thier money back in US.

    March 27, 2010 at 5:09 am |
  30. Chacoal

    It's interesting sometimes to see those arguments on business related issues become political issues.
    I thought if China is not labelled as "Communist", would it gain such "attention" from us. Japan & India are too making surplus vs US. Why they do not face such criticism.
    Afterall, I think the problems we face today in the US. should be fixed from within. We don't fix the problem with the Wall St. We let billions of dollars spent & wasted in wars in Iraq & Afghanistan, not to mention thousands of young lives. And just as the economy shows a sign of recovery, we point fingers to those support our country's finance by paying for our government uncontrollable expenitures.
    Hey, it's us to educate the whole world about the benefit of globalizations, that's why we can maintain a reasonably low inflation. If China move the RMB, who is paying for the consequences I wonder.
    If someone wants to rebalance the business, they can choose to buy Chinese products or not, but not to push up RMB up. Is't US is a place of free trade anymore ? Or as someone suggests, it's actually our country becoming a sociallist country ?

    March 27, 2010 at 6:22 am |
  31. Doug Renner

    @Mike – Actually I'm less of a "chinaphile" as you put it, and more of a truthophile, a new concept for you perhaps, and I've been around long enough to remember when the US Dollar and every other major currency in the world was "pegged" to gold.

    Having a "peg" of some kind is the best way, in fact, to avoid manipulation of currency. This is what is known as a "hard currency" policy and back in the good old days, this philosophy was widespread.

    Of course this gives China an advantage – just as it was an advantage to the United States when we did this. Nations typically do flourish economically when their currencies are immune to manipulation.

    However it is to the advantage – perhaps not to nations – but to politicians when they can adopt a "soft currency" policy and decouple their currencies from anything real, which subsequently allows politicians to deficit spend with wild abandon. THAT is the true manipulation. As Greenspan clearly phrased it in 1967, "Deficit spending is simply a scheme for the confiscation of wealth."

    So, yes it is unfair to ask China to abandon the kind of discipline that most countries had up until 1971. It is also unfair to accuse China of currency manipulation when their monetary policy specifically prevents such mischief.

    It would make more sense to ask the rest of the world to return to a "hard currency" policy.

    Pegging the yuan to the dollar does not in itself make Chinese products inexpensive, since the prices themselves are free to float. What it does is provide stability for the wholesale pricing of Chinese products to the US market. Price stability simplifies business.

    Yes Chinese products are low-priced partly because of the radical difference in labor cost. Unions, benefits, environmental restrictions would all cost money, and these are unfortunately not yet real factors in developing Asia. You called it "slave labor" but it might be more accurate to describe it as "insanely high productivity." Many workers do labor very hard for very little compensation (and I feel for them) but the fact is they are not being enslaved. There may be financial bondage, but this is common everywhere including in the USA where many people live "paycheck to paycheck." Working conditions were also very poor in the USA when our own industrial revolution was young. So that's simply where China is right now. She is a developing nation, and that has little to do with her currency.

    March 27, 2010 at 7:23 am |
  32. CS

    It is a tough fight which will get tougher for the US. Economy of China is growing rapidly, which will create lot of pressure on the US as the US jobs will continue going to China. US currency has to depreciate against Yuan, which China will resist to the fullest. Also, in the process China would push for Yuan as a global currency to have better control over various economies.

    March 27, 2010 at 12:43 pm |
  33. Mike

    The bottom line is that if you increase the value of the yuan by the amount it is estimated to be undervalued – between 40 and 50 percent – there would be no great chinese manufacturing base. They would be forced to compete on a level playing field and would lose badly. The only somewhat acceptable argument for maintaining the yuan at artificially devalued levels is to avoid the massive civil unrest that would take place when all those workers are thrown out on the street because the products they manufacture would no longer be competitive.

    March 27, 2010 at 7:40 pm |
  34. Strangewalk

    Globalization was supposed to allow each country to leverage it's comparative advantage. In pursuing an aggressive mercantilist trade policy and blocking imports, completely disregarding patents and intellectual property rights as well as manipulating its currency exchange rate, China clearly did not play by the rules. America needs to bring it's factories back home, and China has to allow a consumer driven middle class to develop. In short, globalization was a complete failure.

    March 28, 2010 at 8:04 am |
  35. Doug Renner

    So you think that a pair of tennis shoes which was assembled in an asian sweatshop with little regard to the environment by uneducated workers laboring long hours for low wages and no benefits using materials such as solvents which may be banned in the US should nonetheless be priced in the US market similarly to a product made by union employees working an 8-hour shift with full safety equipment for generous benefits and a decent wage after high taxes?

    If so, that strikes me as being some combination of idealism and outright protectionism.

    March 28, 2010 at 9:12 pm |
  36. Doug Renner

    OF COURSE things produced in such a manner will be less expensive. It simply cost less, in every way, to produce it.

    The suggestion that currencies ought to be artificially manipulated so that these similar products produced in very different ways should cost the same in order "to create a level playing field" is a very late suggestion.

    I'm not saying protectionism is inherently evil. That is what protective tariffs are for. However we actively forfeit such options of recourse through participating in the WTO, the granting of Most Favored Nation status, and the ratifying of various other trade agreements.

    So it's not these other nations' faults for entering treaties with the USA which strongly favor these developing nations and transnational corporations doing business abroad.

    We can't blame China. We've tied our own hands. Or rather, our short-sighted sellout politicians have tied our hands for us.

    It's not lost on me that we've spent decades implementing crucial labor and environmental laws, only to have it all become a liability due to a pattern of improper approaches to global commerce. But lets place the blame where it's due.

    March 28, 2010 at 9:33 pm |
  37. Doug Renner

    @strangewalk you've almost got a very strong point about intellectual property, but not everyone believes in that historically new concept. The USA has IP laws which don't exist anywhere else, and there are separate efforts to export these laws even to other first-world nations.

    March 29, 2010 at 12:41 am |
  38. Mike

    Doug. Instead of lowering ourselves to the chinese production standard – slave labor rates and absolutely no respect for the consequences of a completely absent environmental policy (bearing in mind that 16 of the world's 20 most polluted cities are in china) – shouldn't we insist that china raise their levels to US or european standards? Or at least show some interest in eventually doing so? Is that an improper approach to global commerce? At what point do they become responsible for their actions? Or does the rest of the world (primarily those who benefit from doing business in china) simply continue to make up excuses and apologize for them while they continue to vacuum up the the world's capital and raw material resources?

    I do not understand what you mean by "The suggestion that currencies ought to be artificially manipulated so that these similar products produced in very different ways should cost the same in order "to create a level playing field" is a very late suggestion." We are not asking the chinese to artificially manipulate their currency. They are already doing that. We would like them to stop.

    I own and operate a manufacturing company in Brazil. We used to export about 40% of our product to the US until the dollar's rapid decline in value no longer made that possible. We've been forced to re-organize and expand the business we are doing here in Brazil and in other parts of S. America. I'm curious to know, how do you make your money?

    March 29, 2010 at 12:46 pm |
  39. Tom from Vermillion, Ohio

    Why do I get this warm fuzzy feeling that the jobs situation here in the United States will improve as US-China business relations decline?

    March 29, 2010 at 6:17 pm |
  40. Doug Renner

    We cannot "insist" that China raise their manufacturing safety and wage levels to western standards. Well, I suppose we could certainly try to insist but this would accomplish nothing.

    It took decades, really centuries, for western nations to get where we are today. China surely aspires to this, and will achieve a more complex prosperity for her citizens, but they cannot simply throw a switch and make it happen overnight. That takes time and money, and a workforce with some kind of leverage.

    Even if they moved as quickly as possible I don't think many of us would live to see it. As things stand, it is common for the resident factory workers to have traveled some distance for the opportunity to work. China has an unlimited supply of inexpensive labor. We have no concept of that in the west.

    I don't advocate lowering our production or labor standards. Of course this does entail that many of the jobs will inevitably be exported.

    Certainly China is responsible for everything she does – including winning at this international trade game, by rules we seem to have either defined or assented to.

    So of course the jobs are going overseas! I've been sounding the alarm about this for decades, even predicting that America will turn into just a big corporate headquarters. As we know, this partly has happened. What I didn't predict is what we are seeing now already, the next stage, when even the corporate headquarters themselves are being exported to places like Dubai.

    I call it a "late suggestion" because most of these core problems could have been foreseen or at least identified and circumvented long ago. I'm sure everyone knew China would be bringing inexpensive manufacturing to the market, and should have been able to envision what this would eventually do to everyone's manufacturing base. If it was accepted then, we would need a new reason to not accept it today. The suggestion is also late because through treaties, we have forfeited the use of demand-side tools such as tariffs which would solve the problem – if we were to conclude that China's currency were the actual problem. So yes, it's quite late for that. I suppose we could now politely beg them to change their currency policy but unless such a change were to their advantage, why would they do such a thing now?

    From an American's perspective, the prices of your Brazilian manufactured products have apparently risen too high... but of course that is not your fault either. The underlying reality which you know is that our US Dollar has fallen and likely continues to fall relative to your domestic currency.

    The dollar falls primarily and over the long term because our government issues too much currency – which it has to do, simply to pay the bills for living beyond its means. Our currency has thus been grossly mismanaged. After 1971, the dollar has been backed, and only fractionally backed, not by any kind of public asset, but by public debt. We have a fractional reserve system, so any increase in lending immediately brings into existence more currency – either on deposit or in active circulation. More currency also creates more debt, because it is not literally just "printed", with our system new money can only be lent into existence. So, deficit spending by the federal government inevitably requires new money which must be borrowed into existence by the sale of government bonds, and this increase in the money supply causes inflation if it exceeds the growth in the economy itself.

    THAT is the main problem, and by far it is the most manipulative thing that is being done to currency today. You would probably still have an American market for your products if it weren't for this. What I've described here is in no way China's fault.

    China actually is quite angry with the US, for this mismanagement of the dollar. You may know that a large fraction of the US National debt is held by China in the form of US Treasury bonds.

    Imagine for a moment that you are the nation of China, and you have lent America trillions of dollars which had been earned through your manufacturing industries. A "bond" is of course a loan that you expect either to resell or to be paid back for someday, and with interest. Well, surprise: Even though these bonds do have a yield for the bond holder, nonetheless due to inflationary mismanagement of the US Dollar, you're going to get paid back with Dollars which are worth only a fraction of what you originally spent on them after inflation.

    In that sense, who really is playing by the rules, and who isn't?

    The effect on those bonds is similar to what it would be, had the US government been running a massive counterfeit operation. And actually the final effect is worse than a counterfeit operation, because counterfeit money at least would not carry a burdensome public debt to accompany the inflation.

    American businesses paid fairly for the manufactured products, but the American government cleverly snatched the value of that money back, via inflation, due to deficit spending. (The missing spending power does go somewhere – it doesn't simply vanish.)

    If we can get away with managing (or mismanaging) our own currency however we please, why can't China? Isn't their currency peg one of the best ways to defend against such inflationary mischief by a major trading partner?

    -

    As for me, you ask? I'm an IT and MIS consultant by trade, and a small investor in the global markets.

    March 30, 2010 at 10:59 am |
  41. fengshui

    I used to think that Americans r well informed and well educated but I'm totally wrong! Some guy has never been to China but made comments on China blindly.I suggest they go to China to see with their own eyes if they r not unemployed and have the financial power.
    I strongly suggest that Americans work hard ,consume less,travel more to see the outside world.Never blame others when u yourself have made trouble!

    March 31, 2010 at 2:45 am |
  42. aRfFuL

    I love how someone said before that they'll take being free but poor anyday. Whoever said it obviously have never been so poor as to live without food and clean drinking water before.

    A lot of poor countries in Africa is free. However, I doubt there is many people from those countries who would like to live in Africa as oppose to China – otherwise there wouldn't be so much African immigrants and foreign workers in China and other Asian countries. Africa is free – so free that in some countries there is no law and order and civil war is a way of life. Lack of stability for a nation is arguably worse than lack of freedom.

    March 31, 2010 at 4:45 am |
  43. Richard

    This is US problem comes from their overspend behavior and low saving per capita. Don't blame others for its own bad habit.
    It's like "breaking the mirror when you see your face is not as good-looking as it has to be".

    April 3, 2010 at 4:30 pm |
  44. Abbas

    Victor you are correct, organized crime syndicates do very good business in america, everything including curbing chinese currency is the part of tactics to agree China on sanctions against Iran.

    american policies against the developing countries has always been bullying.

    They forced India to withdraw from the gas pipeline project and vote against Iran in UN, and on other hand america supports and harbours pakistan's terror against India.

    Everywhere double standards.

    April 4, 2010 at 10:32 am |
  45. Alex

    A free-floating Yuan will have very negative consequences for the US in the short- and mid-term. China will gain purchasing power while America will lose it. The undervalued yuan directly benefits the US consumer and is a significant factor in our current standard of living. Additionally, the trade deficit the forces China to buy our debt and USD-denominated assets.

    Long-term a re-balance is necessary because we can't keep selling debt indefinitely. However, the politicians who scream foul at China are generally ignorant of short-term drops in American living standards, foreign investment, and Treasury demand that will immediately ensue. Get ready for a bumpy ride, and read up on Mandarin everyone!

    April 13, 2010 at 9:31 pm |
  46. Criminalz

    Wow, thanks guys, i learned a lot just by reading the comments.

    April 14, 2010 at 7:18 am |
  47. Stan Bageli

    China buckled to international business pressure when they finally stopped selling pirated goods, or did they (stop selling pirated goods).

    April 14, 2010 at 2:35 pm |
  48. Ramadurai

    China is not a exporter of natural resources like saudi Arabia. Chine value add the imports and export them. For example China import US$ 1 raw material and export at US$ 1,36. ie 1US$ becomes 6,6 yuan of raw material , converted to 9 yuan of finished product for export. ie the export value is US$ 1.36. Say 1US$ becomes 3,3 yuan. china adds same value addition. Import of 1US$ is 3.3 yuan. value added is 2.4 yuan. sale price is yuan 5,7.in US$ export price is US$ 1,72. It is real life fact in all products china prices are way below western prices. Even 50 % change in value will keep china competetive with western companies. Only can make vietnam, India and other countries can replace in low end products china products. No other benefits will be there. But whole world will miss the improvement in standard of living.

    April 15, 2010 at 10:56 am |
  49. William

    Why should we give China anything but retaliation for the same kind of business it has given America and the world. China gave the world a bunch of hollow promises of safe, quality products which has never been lived up to. The products produced in China harm babies and human life. China gives the world a model of communist, facist and racist beliefs with their own claims of superiority. However, this too is hollowed out by the continuous human rights violations including actions against children and the choice to give birth. Now, these things might not have to deal with its financial or currency. However, when comparing currencies and countries, the yuan needs to be seen as hollow and shallow. Consumers need to turn away from the globally unlawful and banned practices of China. We need to call a spade a spade. The mineral race must be run by America; the race for minerals must be won or made insignificant. China should always be seen as a "manipulator" as it is, not only in terms of business, but in all terms: government, social, business, intellectual property, financial, religious. Everything China and the Chinese are by large are manipulators.

    May 25, 2010 at 2:08 pm |
  50. confused

    So let me try to understand, China prints Money and lends it to the US by purchasing US Treasury Bonds , how does the US spend chinese Yuan ??? So how , hmmm, how the hell, China prints Money and gives it to the USA for American Treasury Bonds and America converts that chinese currency to US currency by printing it. Hang on this is absurd, So China Prints Chinese Money and lends it to the USA at interest and america borrows it and taxes its citizens to pay china paper money again. Is this a scam. Which Bank Tells china how much currency it can print to lend to America ? Why doesnt America Just print more cash and why borrow it at all ?? PONZI SCHEME SCAMMING BANKERS OF THE WORLD.

    May 25, 2010 at 2:28 pm |
  51. confused

    So does China print a Trillion dollars and lend it to the USA ?? Why Doesn't the USA print its own currency and lend it to Africa at interest ? In fact , why doesn't the USA print bags of money and lend it to its self ?? Why are countries borrowing money " at interest " when they are in control of their own sovereign currencies. This would mean that no country in the world is in control of its money supply ???????????????? Quick someone borrow some money off me so I can charge Europe interest , I'll print a new currency ca;;ed Chinese Euro's and lend it to friggen botswana or Bolivia , nop wait . Ill make a currency called Amero and lend it to America Canada and Mexico...AT INTEREST

    May 25, 2010 at 2:36 pm |
  52. icon library

    It agree, a remarkable phrase

    October 10, 2012 at 6:00 am |

Post a comment


 

CNN welcomes a lively and courteous discussion as long as you follow the Rules of Conduct set forth in our Terms of Service. Comments are not pre-screened before they post. You agree that anything you post may be used, along with your name and profile picture, in accordance with our Privacy Policy and the license you have granted pursuant to our Terms of Service.

About Business 360

CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.

 
 
Powered by WordPress.com VIP