Thursday, April 22, 2010

The Smell of Trade War in the Morning

"U.S. legislation aimed at stopping China from "manipulating" its currency by imposing duties on Chinese products would get overwhelming support in the U.S. Senate, co-author Senator Lindsey Graham said on Thursday.

"We'd get 80 or 90 votes if we could ever get this sucker to the floor," the South Carolina Republican lawmaker told a U.S. Senate Banking Subcommittee on Economic Policy hearing.

Obama promised to double exports in 5 years not too long ago (10% growth a year).
But he doesn't realize that U.S. exports have already doubled ! Between QIV 1995 to QIV 2009, in other words - over the last 14 years.

Stratfor and others have noted that severe dislocations will occur in world geopolitics if the US is forced or forces itself into the role of an export-oriented country.

Derek Scissors, a China economist at the Heritage Foundation told the Senate Banking subcomittee pressing for a yuan appreciation "is not going to accomplish much of anything" when Beijing could offset a stronger currency with a range of subsidies to state-owned firms that dominate China's economy.

"We'd be much better off skipping over renminbi revaluation and going to what really matters, which is state domination of the economy in China and the budget deficit in the U.S.," he said.

Good luck 'convincing' the PRC to end state domination of their banking sector after watching the Western view of capital allocation drown in its own recklessness.

But the US ruling class is reckless about everything, and this bodes badly for China - holder of large sums of intrinsically worthless electronic paper - in the long run. That paper is a domestic problem, not an economic one, because the average person in China realizes it was money drained from the consumer for the benefit of export cartels.

One last taste:

(Michigan Democrat Sander) Levin, whose committee has jurisdiction over trade legislation, said he believed China's currency was "clearly undervalued," and has been used by Beijing as "a major tool for them to get an advantage economically over us."

I would only ask, in the end, who is the 'us' Mr. Levin in talking about ?

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