The Senate is being tied up by Sen. Charles Schumer’s (D., N.Y.) currency bill — S. 1619, otherwise known as the Currency Exchange Oversight Reform Act. It would have the United States act unilaterally to punish China for fixing its currency at an artificially low rate. I believe this is a facile, politically clumsy way to address a situation that deserves a real solution.
There’s no dispute that the Chinese are keeping the value of the yuan artificially low, and that this has had an impact on our manufacturing sector. However, much of the impact has fallen not on U.S. businesses but on the manufacturing concerns located in other Asian countries such as Taiwan, Thailand, and Indonesia, which are in reality the keenest competitors of the Chinese manufacturing sector. Also, Western Europe has also seen a low yuan result in higher Chinese imports than would otherwise be the case.
Given that we are not the only country feeling the impact of this policy, it makes sense to enlist these other countries and engage in some sort of multilateral action to address the current situation. Sen. Orrin Hatch (R., Utah) has proposed to do precisely this, with an amendment to the bill that would help create the environment to craft a multilateral response to the issue.
I’ve advocated before that we consider some sort of “League of Democracies” for dealing with issues such as these. The United Nations and WTO are often effectively held hostage by recalcitrant autocracies, resulting in very little getting done — witness the interminable Doha round continuing to languish and the mockery that is the United Nations Human Rights Council.
I realize that such an entity is highly unlikely to get off the ground; still, it would be great if our president could avoid what may eventually be a politically ugly confrontation by being a leader, talking to our friends in the EU, in Asia, and elsewhere, and suggesting we approach China with a unified front. In that guise we could invite them to allow a more realistic valuation of their currency, and do so in a way that gives them something as well, so that it comes off as being something other than a confrontational demand that its leaders would have no option but to reject.
It is a more complex solution to the problem, and not nearly as sexy or slogan-inspiring as the Currency Exchange Oversight Reform Act, but it also happens to have a much greater likelihood of being effectual. But that, I suspect, was never Senator Schumer’s intent.
"I believe this is a facile, politically clumsy way to address a situation that deserves a real solution."
Absolutely right. It's not so much currency manipulation -- though that is part of it. And it's not a matter of PUNISHING China. It's just a matter of protecting our industries and our economy from the wage disparity and the conflict of 1st-world production in a 3rd-world economy.
We need a barrier against things like this:
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1. NEW DELHI — Ford Motor Co. plans to invest about $900 million to build its second factory in India...
2. General Electric Co.’s health care unit, . . . is moving the headquarters of its 115-year-old X-ray business to Beijing.
3. Boston Scientific Corp. said yesterday that it plans to eliminate 1,200 to 1,400 jobs . . . was investing $150 million and hiring 1,000 people in China, . . . will gradually shift more work to foreign sites...
4. "The New Learjet, Now Mexican Made." -- G.E. and Bombardier are making big investments in Mexico, using locally-trained workers to help build their newest jets.
5. Caterpillar Inc. announced that it plans to open a new manufacturing facility in Xuzhou, Jiangsu Province, China..... When fully operational and at full capacity, it is expected to employ about 400 people.
6. General Motors Co. . . . opened a $200 million diesel engine plant in Thailand's eastern Rayong province Friday. . . The facility. . . has a production capacity of around 120,000 engines a year . . .
(And from my own home town:)
7. "Otis expected to close local plant," Herald-Times, Sept 20,2011 : The company ceased manufacturing operations locally at the end of 2004. At that time, it had had shifted much of its elevator assembly work to plants in China and Mexico.
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Where are all our jobs going? Where AREN'T they going?!?
Who's afraid of a trade war? We can't GET any broker than we already are.
Hey, Congress: It’s the Giant Sucking Sound, stupids!
Reply to this commentLinkReport AbuseSo the fact that American workers demand more compensation than their labor is worth, is proof that the govt needs to prevent companies from doing anything about it?
After we force American companies to only build factories in the US, two things will happen.
1) American companies will no longer be able to compete overseas, because their products are much more expensive than anyone else's.
2) American companies will no longer be able to compete here, because their products are much more expensive than anyone else's.
End result: All American companies go out of business, and we end up buying stuff built overseas anyway.
Reply to this commentLinkReport Abuse"I believe this is a facile, politically clumsy way"
-considering Schumer is a facile, politically clumsy old lady, I'd say you made a good call.
The last time he poked his head out from under the couch was to legislate against noisy TV commercials.
Landmark legislation, at that...
Reply to this commentLinkReport AbuseWhy does the measurement unit of exchange affect the amount that gets traded?
Reply to this commentLinkReport AbuseThe mechanism by which China keeps the Yuan "artificially" low, is by buying lots of our govt debt.
Do we really want them to stop that?
Reply to this commentLinkReport AbuseUM, actually you are incorrect. The Yuan floats in a narrow range dictated by the Chinese government. The complaint is that range is far too narrow and value the Yuan below what the market would.
Reply to this commentLinkReport AbuseHow about if we send the Chinese a thank you note for sending us all the stuff at reduced prices? Any system to punish American consumers is a bad idea. Let's keep the Chinese happy (and stupid) while we reap the benefits.
Reply to this commentLinkReport AbuseI'm not an economist, but one lesson I've learned to believe is that government manipulation of the economy is always a tradeoff because it sends the wrong signals to the markets.
If that is true, there should be some negative consequences to China resulting from their manipulation, no? It seems to me that China has created their own internal speculative bubble which is not sustainable indefinitely.
We artificially inflated our domestic real estate prices by mandating risky loans to uncreditworthy individuals. Why won't the Chinese bubble pop all by itself without any help by our Senate? Is the Chinese government far more skillful than their American counterparts?
If currency manipulation has no consequences, why aren't we busily doing it?
Or are we?
Reply to this commentLinkReport AbuseChina's manipulation of its currency is, in a sense, impoverishing its people by paying them in currency worth less than it would be without the manipulation, and enriching our consumers, who can buy Chinese made goods at lower prices than they would be without the manipulation. Changing the situation as proposed would raise prices to consumers, lowering our standard of living.
A better approach would be to ignore the Chinese, and to eliminate regulations on US industry to allow it to compete at the lower price levels.
Reply to this commentLinkReport AbuseWhile I agree entirely with your second paragraph, I would make a comment on your first paragraph.
Isn't the calculation that needs to be done a measurement of the benefit of cheap (low cost) Chinese goods for the American consumer as a comparison to the damage that off-shoring (moving American manufacturing to China) causes the American work force, particularly the laborer (but, as plants close, it's just not labor that's impacted, of course)?
Put another way - sure, we get very cheap things from China which helps to keep American inflation very low. That's (probably) a good thing. But, light and heavy industry has been badly damaged because so much of it has moved to China.
I don't know if it's reasonably possible to calculate the benefit vs. the bug in this regard, but if it is possible, it surely would be informative, would it not?
Reply to this commentLinkReport AbuseSo the proposed solution to the problems of the WTO and UN is to create yet another multi-lateral international organization which is unelected and unaccountable?
Yea, get back to us on how well that works.
BTW, the reason why the Doha round failed was the mostly due to the US and our issues with ag subsidies.
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