Posted by Michael A. Kamperman on January 17, 2011
President Hu is rolling into the U.S. and the Obama Administration is rolling out the red carpet with a State Dinner. This is positive since the best course of action is cooperation between the U.S. and China on a host of issues, not all of which are economic. However, the reality is China is interested only in what’s in it for China. Therefore, it’s time for President Obama to get tough and tell President Hu, in private, that he now has a deadline to solve the huge imbalances in America’s trade deficit with China. He can either start by revaluing the yuan by 20%, or let it float freely on currency markets, or he can choose to substantially increase purchases of U.S. goods and services to balance out the trade deficit. It’s Hu’s choice, as the U.S. would not be dictating Chinese policy. President Obama would simply use the same tactics as China and declare that U.S. policy will be for the benefit first and foremost for the U.S. Were I President I would set a deadline of July 1, 2011, which is plenty of time for action on the part of China. The U.S. is in a jobs depression and we can no longer just give U.S. jobs away with nothing to show for it in return. If Hu fails to act, then President Obama can implement an across the board 30% tariff on all Chinese goods and services entering the U.S. and declare Chinese currency policies in violaion of the WTO. This will make both China and the global corporate interests that benefit from current policies furious. But it is necessary to restore the “American Dream” to the average American family.
Global corporate interests, like Apple Computer for example, benefit greatly from current policies at the expense of U.S. workers. While the ipod, iphone, and ipad are great American inventions, they are mainly manufactured in China. The reason of couse is cheap Chinese labor. Billionaires are popping up everywhere in China on the backs of cheap Chinese labor. And, billionaires are popping up in the U.S. without nary a thought of driving down the living standards of working Americans. Plainly put, what’s good for Apple and other global corporate interests and what’s good for China is not good for the rest of us.
Our unemployment rate of 9.4% is by now well known to be undercounting the truth of an unemployment rate closer to the mid-teens. We simply continue to drop people who want to work out of the labor force, even if they are healthy and in their 20′s. But less well known, and much less often discussed by the media, is the fact that the U.S. unemployment rate is a quantitative measure, not a qualitative one. If you get a temporary part-time job working for minimum wage and no benefits, then you are counted as a new hire and employed by U.S. government statisticians. Try raising kids and paying a mortgage on minimum wage, part-time. Or imagine yourself as a Chinese laborer working 80 hour weeks for a few hundred dollars a month and no benefits. This is the world current policy has driven us too. And current policy will continue to drive a world where workers are viewed as discardable input costs forced to compete across the globe with each other based on price, rather than viewed as people. If President Hu does’nt want to change his currency policy, then he could offer healthcare to the vast majority of Chinese citizens now forced to go without it. The U.S. is the leader in healthcare and China could help balance out the trade deficit by buying U.S. healthcare products and services. Afterall, when U.S. employers are forced to provide healthcare in 2014 it will only make U.S. workers even less competitive when we allow iphones to be sold in the U.S. made by workers with no healthcare benefits. The current path we are on is a path to a third-world entire world without a middle-class. Where will the iphone buyers come from then?
Posted by Michael A. Kamperman on June 22, 2010
Here we go again. China once again throws us a bone to pacify the barking dogs calling for reform. First China “pretended” to run a trade deficit right before the Treasury had to declare whether or not China was a currency manipulator. Predictably, Geithner took a pass. The next month China once again ran a huge trade surplus. Now China has decided to adjust its currency, the yuan, to a basket of currencies including the euro and the yen as well as the dollar. This decoupling of the dollar is nothing more than a smoke and mirrors trick. China still plans to go “slow.” In fact, Nouriel Roubini pointed out this new structure would allow China to actually weaken its currency against the dollar in the event the euro and yen were to fall significantly against the dollar. What is actually happening is having the yuan tied to the dollar has stuck China with the unintended consequence of seeing its currency rise in value against the euro, whose countries represent its largest trading partner. Despite all the talk about China being concerned about our fiscal position China never took the step to diversify away from the dollar when the dollar was weakening against other currencies. Now that it is strengthening they suddenly want diversity. And predictably, this move occurs right before the G-20 meeting next week where pressure was about to be ramped up on China to reform. Now they can wink and say they already did.
China’s policies are destabilizing the global economy to the benefit of China. Currently China purchases only one dollar worth of goods from us for every four dollars it sells us. Even Japan is only at a two to one ratio vs China’s four to one ratio. Additionally, China has horrific working conditions for little pay. The time has come for the U.S. to tell China the free ride to development is over. Not only must China begin to import more goods, but it must also begin to improve working conditions and raise workers pay. If this costs it some exports, then so be it. There is a direct link to the debt crisis in the West and China’s flooding Western market with cheap goods based on a manipulated currency on the back of all but slave labor. Workers in the West that are forced to compete are being forced to take big pay cuts. Less income reduces their ability to pay their debts.
The upcoming G-20 summit represents an opportunity for President Obama to stand up and be counted. He should not tell others simply what they want to hear. He should not concern himself with America’s likability by the rest of the world. he should tell China the jigs up and gradualism they crave is unacceptable. He should tell Europe, particularly Germany and the U.K., that austerity will solve nothing and will ultimately trap the Western World in a prolonged debt induced depression. He should stand up for Radical Keynesianism. It’s actually comical that the Great Depression of the 1930′s demonstrated Keynes was right and the Austrian Economists were wrong. So who is the world turning to during the next debt-induced Great Depression but the Austrian Economists. Finally, he should then turn the microphone to the U.S. Congress and admit the stimulus bill he championed was too small, not too big. He should lay before them another stimulus bill for 2011-2012 of more than one trillion dollars. This time he should he include massive infrastructure spending, which will improve America’s productivity. He could show real leadership. While not holding my breath, I remain hopeful.
Posted by Michael A. Kamperman on November 10, 2009
Next Next week President Obama is scheduled to travel to Asia. He will go to China and the early word is he intends to confront Chinese leaders about their manipulation of their currency the yuan. It does not float freely against the major currencies of the world like the dollar, yen, pound, and euro. Instead the yuan is fixed to the dollar at an exchange rate that is too low and it gives China a competitive advantage in competing for exports against almost every other nation in the world. It also makes imports in China expensive thereby encouraging domestic production. President Obama and most world leaders would like to solve their economic problem of creating jobs by expanding exports to other countries. China’s cheap yuan is an obstacle to achieving this goal. If the global economic pie were expanding then China’s cheap yuan would be an annoyance. But because the pie is shrinking other nations are jealously eying China and looking for ways to either gain some of China’s export jobs or get some of the jobs they shipped to China back. Also, most nations not only want a bigger share of China’s export market, they want a bigger share of China’s domestic market. The concept of rebalancing global trade is a good thing as long as it is about having China buy a lot more from us, not sell less to us. It is a good thing as long as it is focused on expanding the global economic pie and not focused on getting a bigger share of a shrinking pie. China has had to pivot its economy to focus more on the domestic market in order to maintain its economic growth targets because global trade has shrunk by almost 20% in the last year.
President Obama risks a global trade war if his focus is on cutting China’s share of global trade rather than on having China open its markets to outside competition more quickly. The value of the yuan is not main the problem. It is merely one of the tools China uses in its strategy of shipping as much as it can in finished goods to everyone else and buying as few finshed goods as it can from everyone else. The President needs to emphasize that trade with the U.S. and other developed nations is on a quid pro quo basis. China never should have been allowed to manipulate its currency. But because China is actually the world’s second biggest economy, then any abrupt change in yuan policy could cause unintended consequences. It is best to slowly position the yuan to float over time and in the short run to focus on having China quickly open its domestic markets to world exports.
President Obama will not be able to solve the America’s economic woes simply by focusing on exports. The U.S. economy is currently around $14 trillion and global trade ex-U.S. is currently around $11 trillion. Of this amount about 40% is regionally based between neighbors, similar to our inter-state commerce. Additionally, approximately 20% of global trade is energy related. This leaves about $5 trillion worth of ocean-crossing tradable goods and services above and beyond the $1 trillion we already have. Other nation’s are not going to willingly turn their share over to us. If ocean-crossable global trade expanded by 50% and we captured 50% of the increase, it would still represent less than 10% of the U.S. economy. Never mind the question of how will the world grow 50% if the U.S. consumer is forced to sit on their wallets? What President Obama should tell China is to open up their markets or we will shut ours. Then, he should come home and work on fixing the broken credit markets and creating jobs for Americans whereby they make and sell things to the world’s number one consumer, namely other Americans.
