Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Three Reasons the China Currency Bill Will Backfire

Politics / Fiat Currency Oct 06, 2011 - 07:45 AM GMT

By: Money_Morning

Politics

David Zeiler writes: A Senate bill that aims to restore American jobs by punishing China for its undervalued currency may resonate with a frustrated American public, but it won't work.

In fact, instead creating jobs, the bill is more likely to trigger a damaging trade war with China and increase retail prices for Americans - further hurting the consumer spending that has already been undermined by high unemployment.


"This move is idiotic on so many fronts, I don't know whether to laugh or cry," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

The Chinese have already threatened to retaliate, and Fitz-Gerald says there are three other reasons why China currency the bill will backfire:

•Tariffs on Chinese goods will raise prices for consumers in the United States, particularly at such retailers as Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT).
•China holds $3.2 trillion in foreign reserves, much of it in U.S. securities, while U.S. national debt is over $14.7 trillion.
•And China's exports to the United States account for only 4.8% of the country's gross domestic product (GDP).

"The U.S. Senate has decided to put partisan showboating on the back burner just long enough to craft a bipartisan showboating bill," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

Five Republican senators joined 14 Democrats in co-sponsoring the China currency bill.

Of course, it's easy to see why shortsighted Senators like the China currency bill, which would impose a tariff on imports from countries that fail to address their undervalued currency.

The United States and other countries have long complained that China keeps the yuan undervalued to make its exports cheaper. The $273 billion of U.S. debt China racked up is clear evidence that the country isn't exactly playing fair.

Furthermore, supporters of the legislation say it would bring home between 500,000 and 2.25 million job, boost U.S. exports, and reduce the federal budget deficit by $850 billion over 10 years. And unlike the stimulus packages of the past several years, it would cost the U.S. Treasury nothing.

But these proponents of the legislation are also guilty of overlooking some fairly important points. The most obvious is that over the past three years the U.S. Federal Reserve has seriously weakened the dollar through its loose monetary policy. And as our largest creditor, China has absorbed the brunt of that devaluation.

And even if the United States did have principle on its side - which it doesn't - China has made it clear that it will not be bullied by the West into adjusting its monetary policies.

Shortly after the Senate voted 79-19 on Monday to bring the currency bill to the floor for debate, three Chinese government agencies denounced it.

The Chinese central bank said passage of the measure "may seriously affect the entire progress of China's reform of its yuan exchange rate regime and also lead to a trade war, which we would not like to see."

Indeed, a trade war is something the global economy, much less the U.S. economy can hardly afford at this time. And by pursuing one, the United States risks undoing all of the progress it's made up to this point.

After all, the Chinese yuan has gained 30% on the U.S. dollar since 2005. So China is allowing its currency to appreciate - it's just doing so on its own terms.

Thankfully, the Senate bill is nowhere near law, and many representatives have already expressed reservations about its implementation.

"I'm concerned about the Chinese currency situation," House Speaker John Boehner, R-OH, told reporters at the Capitol on Tuesday. "But I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency."

The Obama administration has also voiced caution, noting that the sort of retaliatory action prescribed in the Senate bill requires the consent of such international groups as the World Trade Organization (WTO).

So for the time being at least we can chalk all of this anti-China talk up to political grandstanding.

And if you'd like even more insight into China and other growing Asian economies, you should sign up for Keith Fitz-Gerald's New China Trader newsletter. To subscribe, click here. There you'll find all of the Chief Investment Strategist's latest stock picks and advice.

Source : http://moneymorning.com/2011/10/06/three-reasons-the-china-currency-bill-will-backfire/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules