Posted on 07/26/2005 5:50:46 AM PDT by OESY
...The link between the yuan and the dollar worked beautifully for both China and the U.S. for a decade. The yuan's dollar-linked stability gave China an investment boom that lifted millions of Chinese out of poverty and created a growing consumer market.... Low-income Americans benefit by being able to buy low-cost necessities with Made-in-China labels at their local Wal-Marts. America's low unemployment and vigorous growth signal that the China trade has not inflicted the damage in broad terms the protectionists claim....
Yet increasingly they are political competitors as China grows richer and more inclined toward making its weight felt internationally. China has ambitions to replace the U.S. as the hegemonic power in southeastern and eastern Asia. It is engaged in a rapid arms buildup to this end....
The White House could help keep relations between the two countries on an even keel by discouraging the protectionists in Congress from constantly taking target practice at China for selling cheap goods to American factory workers. The pressure from the Bush administration on China to float the yuan -- on the deeply flawed theory it would make Chinese goods more "expensive" -- was a failure by the White House to fulfill its end of the tacit bargain.... The constant nagging on trade issues gives Chinese militarists a good argument that the U.S. is an enemy, an attitude that could some day get both sides into a lot of trouble. Neither the U.S. nor the Chinese government is doing a good job of managing its troublemakers....
Time is on the U.S. side if it can maintain a cordial relationship. The Chinese government is controlled by a Communist Party that long ago abandoned Marxist-Maoist utopian dreams but that nonetheless brooks no opposition. It has, as a result, become increasingly corrupt....
(Excerpt) Read more at online.wsj.com ...
WSJ op-ed does not like floating yuan. Are they for free and open markets or not? Why tie Chinese money and nothing else?
"The White House could help keep relations between the two countries on an even keel by discouraging the protectionists in Congress from constantly taking target practice at China for selling cheap goods to American factory workers."
What factory workers? Do they mean that all the poorly paid hamburger flippers, construction crews on the housing explosion, retail workers at the mall and poorly paid medical secretaries and CNA's are the factory workers?
Factories keep closing in case they haven't noticed yet.
Melloan does not like it. I would not drag the whole paper into his camp. And he is, of course, quite wrong - the peg Yuan has not served US interests well.
Keeping the Yuan pegged to the dollar has allowed every American to purchase more with their dollar.
It has contributed measurably to the prosperity of America by allowing the purchase of other things with the dollars left over as a result of cheap goods.
It is, admittedly, an uncomfortable alliance. America gets cheap goods, China gets a constant flow of cash.
One cannot do this, of course; one may just postpone the inevitable, which is just what China has been up to for over a decade now. The side effects are as legion as they are destructive. For instance, keeping US treasury rates down has had the indirect effect of pumping mountains of foreign capital into our real estate markets, thus inflating prices to the point that many can no longer home to buy a home other than through dubious propositions like "interest only mortgages' (a financial product that seem almost like indentured servitude to me.)
a couple of points worth noting here -
from what I have seen, COG from china is something like less than 5% of normal retail for textiles, i do not know if this holds for other consumer goods. even a 10% increase in yuan is negligible in terms of impact on retail prices here. the rhetoric about 'cheap goods' and 'american jobs' is just that, since if we don't buy it from china, it would have been bought from india or another asia low-cost producer.
I would not mind having seen india get the cash we are giving to china, but the genie is out of the bottle. Given that every fortune 100 country HAS to be in china to guarantee future access to that market, the writing is on the wall as far as I can tell.
I think we will eventually use India as leverage to influence China's behavior. We are already in cozy up mode with India. India may be the major hope for some form of stability in the greater Asian market.
The big question is if China can sustain the output and keep civil unrest at bay.
Your comment about the Yuan is spot on. The recent 2% adjustment was just symbolic.
China was going to try to dictate to Wal Mart the terms upon which they would do business in country. Wal Mart was able to dictate to China the way they would work in China. And the threat to China from Wal Mart was "we don't need you". Asia is a big place and the Chinese do not have the lock on cheap labor.
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