What are the pros and cons of a trade currency war with China?

[Moonbeam]

If it was in their best interest, they would've have done this years ago. You've only made cliched, useless statements regarding this topic towards me and never sought to disprove what I said. Next time try to have an informed conversation rather than spewing insults. Here's what pressure from Congress can get you:

It's nice to find somebody with a sense of humor. It's isn't every day that somebody posts an article that makes my point and destroys their own. Thank you for your kindness. I had feared that a frank expatiation of my original post would hurt your feelings and send you into a mindless defensive snit. Your article amply demonstrates that China's best interests evolve as their economy does and that experts in China recognize this and are pushing for change that will be to China's future benefit. And isn't it nice that what will be of benefit to China will also benefit us. It's wonderful when the fools who use threats and fear stay home and adults meet to plan for a mutually better future.

 

[Narmer]

It's nice to find somebody with a sense of humor. It's isn't every day that somebody posts an article that makes my point and destroys their own. Thank you for your kindness. I had feared that a frank expatiation of my original post would hurt your feelings and send you into a mindless defensive snit. Your article amply demonstrates that China's best interests evolve as their economy does and that experts in China recognize this and are pushing for change that will be to China's future benefit. And isn't it nice that what will be of benefit to China will also benefit us. It's wonderful when the fools who use threats and fear stay home and adults meet to plan for a mutually better future.

You're an idiot if you think this is nothing more than saving face. I can safely say that I know more about this than you. Not once were these reasons made in the American media or the Chinese media (which I read). Now, all of a sudden, they are saying they wanted this all along. Of course, the head of their central may have wanted this all along but, considering that this is a one-party state where information is carefully expressed by officials, it is no surprise that no one has heard it until now (dissent is not allowed). Now you read this and claim that you were right all along. FWIW, the Chinese have been battling inflation for years now (especially in their main staple, pork) but them suddenly having a change of heart right before Treasury was supposed to report on them being a currency manipulator and two months after Obama weighed in says that the pressure was external rather than internal. I have no doubt that the Chinese are suddenly telling the media that they meant to do this all along and announce it at this exact moment in order to save themselves the embarrassment of lookiing like they're capitulating to America.

You really should know what you're talking about before mouthing off with your psycho-babble.

 

[bdude]

Will a stronger yuan vis-à-vis the dollar really help reduce America’s trade deficit? If a revaluation of the yuan would help balance out trade flows between China and America, then the rise of the yuan from 8.24 to a dollar to the present rate of 6.83 should have made a substantial dent on the trade deficit. The 20 percent rise in the value of the yuan within a few short years was actually accompanied by a substantial increase in America’s trade deficit with China. In other words, a stronger yuan will probably mean a bigger American trade deficit.

The translation mechanism between exchange rate movements, consumer choice and ultimately global trade flows is murky, but I think that it has something to do with the nature of the trade. China sells mostly manufactured goods to the United States. Since labor costs are a significant component of the price of manufactured goods, any increase in the value of the yuan would actually represent an increase in Chinese labor costs that must be borne by the end consumer in America. Otherwise the trade would cease as all the Chinese contract suppliers are squeezed out business. However, for a wide swath of products, there is no real option but to buy from China. Hence, in calling for a realignment of the yuan-dollar exchange rate, the Obama administration has actually imperiled domestic price stability without helping American companies compete in the global market.

 

[Narmer]

Will a stronger yuan vis-à-vis the dollar really help reduce America’s trade deficit? If a revaluation of the yuan would help balance out trade flows between China and America, then the rise of the yuan from 8.24 to a dollar to the present rate of 6.83 should have made a substantial dent on the trade deficit. The 20 percent rise in the value of the yuan within a few short years was actually accompanied by a substantial increase in America’s trade deficit with China. In other words, a stronger yuan will probably mean a bigger American trade deficit.

The translation mechanism between exchange rate movements, consumer choice and ultimately global trade flows is murky, but I think that it has something to do with the nature of the trade. China sells mostly manufactured goods to the United States. Since labor costs are a significant component of the price of manufactured goods, any increase in the value of the yuan would actually represent an increase in Chinese labor costs that must be borne by the end consumer in America. Otherwise the trade would cease as all the Chinese contract suppliers are squeezed out business. However, for a wide swath of products, there is no real option but to buy from China. Hence, in calling for a realignment of the yuan-dollar exchange rate, the Obama administration has actually imperiled domestic price stability without helping American companies compete in the global market.

It helps. But China's pegged currency hurts other currencies as well, especially those in developing countries, who are forced to devalue just to keep up with the Chinese.

 

[Moonbeam]

You're an idiot if you think this is nothing more than saving face. I can safely say that I know more about this than you. Not once were these reasons made in the American media or the Chinese media (which I read). Now, all of a sudden, they are saying they wanted this all along. Of course, the head of their central may have wanted this all along but, considering that this is a one-party state where information is carefully expressed by officials, it is no surprise that no one has heard it until now (dissent is not allowed). Now you read this and claim that you were right all along. FWIW, the Chinese have been battling inflation for years now (especially in their main staple, pork) but them suddenly having a change of heart right before Treasury was supposed to report on them being a currency manipulator and two months after Obama weighed in says that the pressure was external rather than internal. I have no doubt that the Chinese are suddenly telling the media that they meant to do this all along and announce it at this exact moment in order to save themselves the embarrassment of lookiing like they're capitulating to America.

You really should know what you're talking about before mouthing off with your psycho-babble.

You mean I should hold your opinion rather than my own because you know or claim to know more than me and you would be right and I wrong, even though this is of personal interest to you and we can presume you have a lot more unconscious reasons for seeing things this way or that on this issue because you are personally involved. Thanks, but the truth, in my opinion, is that China now needs to develop an internal market and they will see it because it is good for them. I believe that the truth is a powerful force because it is the truth. You may not wish to be so charitable. I don't think you have much use for the Chinese government and may feel a need to portray everything they do as evil, no? I don't have such a need any more than I have a need to see them as good.

 

[Moonbeam]

Will a stronger yuan vis-à-vis the dollar really help reduce America’s trade deficit? If a revaluation of the yuan would help balance out trade flows between China and America, then the rise of the yuan from 8.24 to a dollar to the present rate of 6.83 should have made a substantial dent on the trade deficit. The 20 percent rise in the value of the yuan within a few short years was actually accompanied by a substantial increase in America’s trade deficit with China. In other words, a stronger yuan will probably mean a bigger American trade deficit.

The translation mechanism between exchange rate movements, consumer choice and ultimately global trade flows is murky, but I think that it has something to do with the nature of the trade. China sells mostly manufactured goods to the United States. Since labor costs are a significant component of the price of manufactured goods, any increase in the value of the yuan would actually represent an increase in Chinese labor costs that must be borne by the end consumer in America. Otherwise the trade would cease as all the Chinese contract suppliers are squeezed out business. However, for a wide swath of products, there is no real option but to buy from China. Hence, in calling for a realignment of the yuan-dollar exchange rate, the Obama administration has actually imperiled domestic price stability without helping American companies compete in the global market.

From what I hear, a currency change is only a part of a larger solution, necessary but not sufficient.

 

[soccerballtux]

It helps. But China's pegged currency hurts other currencies as well, especially those in developing countries, who are forced to devalue just to keep up with the Chinese.

oh yeah, I forgot about that one, this is a big problem too.

 

[Narmer]

You mean I should hold your opinion rather than my own because you know or claim to know more than me and you would be right and I wrong, even though this is of personal interest to you and we can presume you have a lot more unconscious reasons for seeing things this way or that on this issue because you are personally involved. Thanks, but the truth, in my opinion, is that China now needs to develop an internal market and they will see it because it is good for them. I believe that the truth is a powerful force because it is the truth. You may not wish to be so charitable. I don't think you have much use for the Chinese government and may feel a need to portray everything they do as evil, no? I don't have such a need any more than I have a need to see them as good.

I could play along with your psycho-babble and say that you don't know what the truth is (because you don't know what you don't know. You also know there are things that you don't know. Worse, what you know may be incorrect. All this makes knowing the universal truth impossible to know). But I won't. The gov't did not just wake up to the benefits to an internal market over the past couple of months. Like any economy, they favored exports because it brings in cash. Internal markets have a tendency to export cash, so gov'ts tend to see it in a lesser light. But I'm done discussing this. Next time, put your arguments up instead of making snide remarks.

 

[Moonbeam]

I could play along with your psycho-babble and say that you don't know what the truth is (because you don't know what you don't know. You also know there are things that you don't know. Worse, what you know may be incorrect. All this makes knowing the universal truth impossible to know). But I won't. The gov't did not just wake up to the benefits to an internal market over the past couple of months. Like any economy, they favored exports because it brings in cash. Internal markets have a tendency to export cash, so gov'ts tend to see it in a lesser light. But I'm done discussing this. Next time, put your arguments up instead of making snide remarks.

I hear the term psychobabble all the time. That always happens when you take a deep person of profound introspection, hard won personal insight, and years of psychoanalysis and put them up against some ignorant noob-flake like yourself. Hehe, it even happens to folk who don't really know very much like me. In either case you're in so far over your head that the bubbles come up chortling psychobabble psychobabble psychobabble.

And a snide remark can tell me if you are a defensive self hating twit who lacks assurance in his position, or a person of confidence able to rub two words together in logical defense. Trust me, psychobabble doesn't count for the latter.

 

[soccerballtux]

If it was in their best interest, they would've have done this years ago. You've only made cliched, useless statements regarding this topic towards me and never sought to disprove what I said. Next time try to have an informed conversation rather than spewing insults. Here's what pressure from Congress can get you:

I'm just happy they're listening to our economists. We're not biased against them, we just call it like we see it.

most of all they need to stop sealing from their citizens to fund expansionary fiscal policy. Chinese could seriously start consuming a lot if they actually benefited from their 30% savings rates. As it is they just lose it to inflation.

 

[Narmer]

I'm just happy they're listening to our economists. We're not biased against them, we just call it like we see it.

most of all they need to stop sealing from their citizens to fund expansionary fiscal policy. Chinese could seriously start consuming a lot if they actually benefited from their 30% savings rates. As it is they just lose it to inflation.

Yeah. The problem is the government is relatively closed. They think they know best. I'm not sure how all this will end but I'm certain that, once the middle class reaches critical mass in China, this bullshit won't last much longer. Materialism isn't consuming physical products. It's also consuming ideas.

 

[soccerballtux]

I'm just happy they're listening to our economists. We're not biased against them, we just call it like we see it.

most of all they need to stop sealing from their citizens to fund expansionary fiscal policy. Chinese could seriously start consuming a lot if they actually benefited from their 30% savings rates. As it is they just lose it to inflation.

Yeah. The problem is the government is relatively closed. They think they know best. I'm not sure how all this will end but I'm certain that, once the middle class reaches critical mass in China, this bullshit won't last much longer. Materialism isn't consuming physical products. It's also consuming ideas.

Well, the middle class won't reach critical mass in china any time soon. Politically they have way too many problems (too much corruption), and economically they have their own bubble about to burst and American consumption about to fall even further as local governments (here-- state/city) are forced to cut back spending. Everyone freaks that China is about to take us over; they're not-- we're all just going to be riding one long slow ride down the economic hill.

I'm just glad I've got an engineering job, it seems we always have a job; God willing.

 

[Narmer]

Well, the middle class won't reach critical mass in china any time soon. Politically they have way too many problems (too much corruption), and economically they have their own bubble about to burst and American consumption about to fall even further as local governments (here-- state/city) are forced to cut back spending. Everyone freaks that China is about to take us over; they're not-- we're all just going to be riding one long slow ride down the economic hill.

I'm just glad I've got an engineering job, it seems we always have a job; God willing.

One thing I found striking in one of the NYT articles I linked is how low pay jobs like textile are leaving China altogether for places like Bangladesh and Vietnam. The theory said that they would move from the coastal region to the interior. But they are just moving out of the country. I wonder if this means that their interior infrastructure is weaker than originally thought, which makes transportation costs more expensive. It was interesting. It does lend credence that there is a bubble, but it may be regional and man-made (political/corruption//one-party system that misallocates capital).

 

[lsquare]

Timothy Geithner and Charles Schumer are playing good cop bad cop with China. As we all know in the end China will not budge, they don't give a flying fvck about US anymore. So we declare China as "Currency Manipulator" and maybe slap some tariff on imports. In that scenario, what do we gain or loose. Will it really change anything? ppl are used to cheap ass good now, no one will be happy paying twice as much at the supermarket even though it brings jobs to US. We have way too many poor ppl that were imported by the dems over the last two decades who couldn't care less about the greater good of the country and then eventually the Chinese in liaison with our politicians with find another way in.
But doing nothing is not an option either and perhaps other nations and EU might pitch in and eventually level the playing fields a little bit for good.

Discuss...

Here's what Forbes says

Like what some people have said, forcing China to appreciate its currency will not resolve US unemployment woes. Those manufacturing jobs are forever lost. I'd suggest all critics to get over it. If China appreciates its currency, then those jobs that were moved from the US to China, will just end up being moved to other countries like Vietnam or Cambodia.

The critics also want to point out that if China appreciates its currency, then the US will end up selling exporting more to China, which will also help Obama meet his goal of doubling US export by 2015 or sometime around that year. However, even if US products ends up being more affordable in China, there's no proof that people will end up buying it. There's also no reason to believe that China will not impose tariffs on American products entering the country. Historically, it's been difficult for Western companies to truly break into Asian markets. Even Japan imposes tariffs to protect its economy.

Furthermore, is it in the US or the Western world's interest to have a richer and more powerful China in the world? It's already obvious to most people that China listens to no one and will always act in its own interest (like any other nation would). Would a richer and more powerful China be more antagonistic towards the US? Wouldn't fears of the Chinese buying up valuable American assets increase reminiscent of the failed attempt by a Chinese company to buy a US oil company in 2005 or the 1980s when the Japanese went on a shopping spree to buy up US assets?

There are pros and cons to a stronger China currency. Trade disputes are not only inevitable with China, but it's already happening today even without labeling China as a currency manipulator. Chinese companies continues to violate US intellectual property. The Chinese government is illegally subsidizing its companies at the detriment of US companies. The list goes on and on. The currency dispute is in my opinion the least important part of our disputes with China. The other issues are not only bigger, but may also worth more in dollar terms. The only reason why the currency dispute is making constant headlines is because it's been politicized by politicians hoping to keep their jobs.

 

[lsquare]

China has nothing to gain from allowing the yuan to float. They invested 8 yuan for every dollar in US treasuries. If they're going to going to let float the yuan, they're going to dump all their US treasury securities first.

What makes you think they have nothing to gain by allowing the renminbi to float? There are pros and cons to a Chinese appreciation of its currency. Chinese purchasing power will substantially increase if its currency were to float because we all know that its value is significantly undervalued.

 

[lsquare]

Geithner has made no serious effort to quit relying on China. Personally, I would rather have a protective tarriff against Chinese goods than stimulus money to create jobs, but like nonlnear said, it would make the recession worse because people couldn't buy cheap goods anymore.

The root of these trade problems are central banking and government currency, but Obama and his Admin don't care about making this the best country in the world, so it's a fucking pipe dream.

It just pisses me off how people complain about China yet they're not willing to wipe out the root of the problem.

My solution: Get rid of the Fed and go to non-governmental currency. We would have the strongest currency in the world and trade deficit wouldn't be an issue.

There hasn't been a country in the world that's been buying up US debt like China has.

You've also said it yourself that current Chinese currency policies have benfitted poorer Americans. If Chinese currency appreciates, these people will be affected as long as goods are made in China.

Stop blaming Obama for the root cause of the US' economic woes. He's only been in power for a little more than a year. These problems are years in the making. Don't forget President George W. Bush enacted a massive stimulus plan of his own towards the end of his term in office.

It's not in our interest to have a trade war with China. Imposing more tariffs and labeling China as a currency manipulator will only make things worse. The US is not invincible and it'll definitely feel some pain if it goes into a trade war with China.

An even stronger US dollar will only send more jobs in the US to other parts of the world. Other markets would become very attractive to MNCs operating in the US.

Here's the irony in your argument. You're pissed off at how bad the US economy is today, but yet your proposals to fix things will only end up making things worse in the long run. US exports will surely decrease if its products were to become more expensive to other countries.

 

[lsquare]

If the Chinese dump our currency on the open market, it will lower the value of the USD, thus making our exports cheaper for the rest of the world.

That will also complicates the fed's interest rate policy.

 

[lsquare]

Pros: we get more jobs
Cons: stuff gets more expensive

False. Those jobs are gone for good. China isn't the only currency manipulator in the world.

 

[lsquare]

How are they going to control them? Chinese are crazy. They get pissed, want their way, and riot to get it. If they don't maintain 8%+ growth/year they're looking at destabilization and a new regime. Serious. You think anyone could control a billion people?

How do you know that the Chinese needs at least 8% to maintain stability at home? Why can't it be 7% or even 6%? Just because the Chinese government said 8% is the minimum amount of growth needed for stability at home doesn't mean it's true.

India seems to be doing a pretty good job and they have over 1 billion people as well. Of course, India has its own problems to deal with just like every single other country in the world too!

 

[lsquare]

umm with their 7.5 million strong military? Quote Deng Xiaoping "Political power grows out of the barrel of a gun". It's sure nice to be able to drive tank over your own people without much political consequences.

You're wrong, it was Mao who said that.

 

[lsquare]

unless there'a a massive change in the regulatory and pay structure in the us, we'd not be able to make the stuff at a price point that would be affordable... that's why it's made in china now... people would be making stuff here if it was profitable... if you triple the price of stuff then a lot less will be produced and sold, not the basis for a booming economy...

Thank you! I think you're one of the few individuals who have said something that's not only intelligent, but also rational in this thread.

 

[lsquare]

Will a stronger yuan vis-à-vis the dollar really help reduce America’s trade deficit? If a revaluation of the yuan would help balance out trade flows between China and America, then the rise of the yuan from 8.24 to a dollar to the present rate of 6.83 should have made a substantial dent on the trade deficit. The 20 percent rise in the value of the yuan within a few short years was actually accompanied by a substantial increase in America’s trade deficit with China. In other words, a stronger yuan will probably mean a bigger American trade deficit.

I don't think a stronger Renminbi will mean a bigger US trade deficit. The problem is that even at the current rate, there are still incentives for us to do with business with China. If not, then we would have moved on by now. What you have failed to take into account is that productivity in China has also improved at the same time its currency has appreciated.

The translation mechanism between exchange rate movements, consumer choice and ultimately global trade flows is murky, but I think that it has something to do with the nature of the trade. China sells mostly manufactured goods to the United States. Since labor costs are a significant component of the price of manufactured goods, any increase in the value of the yuan would actually represent an increase in Chinese labor costs that must be borne by the end consumer in America. Otherwise the trade would cease as all the Chinese contract suppliers are squeezed out business. However, for a wide swath of products, there is no real option but to buy from China. Hence, in calling for a realignment of the yuan-dollar exchange rate, the Obama administration has actually imperiled domestic price stability without helping American companies compete in the global market.

I think you've made some good points. Currency rates are only one part of the problem that's affecting US exports abroad. Tariffs and other protectionist laws/activities in many Asian markets affect US exports. Even Japan is tough for US companies to break into. The only way we will resolve these trade imbalances is if those countries not only start to consume more, but also repeal some of those laws and subsidies.

 

[lsquare]

One thing I found striking in one of the NYT articles I linked is how low pay jobs like textile are leaving China altogether for places like Bangladesh and Vietnam. The theory said that they would move from the coastal region to the interior. But they are just moving out of the country. I wonder if this means that their interior infrastructure is weaker than originally thought, which makes transportation costs more expensive. It was interesting. It does lend credence that there is a bubble, but it may be regional and man-made (political/corruption//one-party system that misallocates capital).

It could also be part of US companies' desire to diversify their manufacturing base. There's a bit of a backlash against US companies in China right now. It would be smart to have a wide array of options in the event that doing business in China becomes even harder.