Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Chinese Yaun Manipulation, Currency Reform Bill Is Only a Small First Step

Politics / Market Regulation Jul 03, 2010 - 05:45 AM GMT

By: Ian_Fletcher

Politics Best Financial Markets Analysis ArticleIt’s nice to see the long-stewing Chinese currency manipulation pot bubbling a bit again, thanks to China’s latest blatantly disingenuous move to allow a token fluctuation or two of the yuan.  And it’s great that Sen. Debbie Stabenow’s currency bill is inching towards the floor of the Senate. (The underlying idea, giving American industries formal trade remedies against currency manipulation by foreign governments, was actually thought up several years ago by  Kevin Kearns, president of my organization, the U.S. Business & Industry Council.)

Passing this bill would be a very useful and encouraging step.  Currency manipulation and related trade chicanery have gone on long enough. It’s especially encouraging that the bill’s sponsors grasp—as the trade-clueless Obama administration doesn’t—that trying to change China's behavior is a losing game.  So this measure wisely dispenses with preaching reform to Beijing and simply authorizes the use of sanctions in particular cases to provide trade relief to victimized American industries.

Preaching reform to China is a complete waste of time for a number of reasons. 

First, China is making such enormous profits off of what it’s doing that its government would have to consist of saints for them to change anything because of some idea of what’s “right” or good for the rest of the world economy.  If Beijing cared about any of this, it would not be manipulating its exchange rate in the first place.  Among other legal strictures, the Articles of Agreement of the IMF (Article IV, revised, which went into effect in 1978) prohibit members from manipulating their exchange rates.

Second, with the U.S. having just survived one economic crisis and quite likely drifting paralyzed towards another, we’re not especially credible right now giving anyone else economic advice.  If we’re so smart, and free trade is so good, then why are we the ones in crisis while some of our adversaries enjoying double-digit economic growth rates?  That’s not a question most Americans want to face, but make no mistake, everybody’s asking it, behind closed doors, all around the world.

Third, if the Chinese leadership knows any economic history—and they seem to—then they know that the policies China is pursuing today are, in essence if not in detail, precisely the policies the US itself pursued in the 19th century to wrest economic leadership from the  then-dominant economic power, Great Britain.  So from Beijing’s point of view, we necessarily look like a bunch of decadent hypocritical whiners. (This doesn’t make them right, but it certainly helps explain their lack of interest in our complaints.)

The strange thing in all of this is that the US, which has no difficulty playing  hardball when it comes to its military relations with the rest of the world, remains stuck in a dreamily idealistic Wilsonianism when it comes to international trade.  In our government’s free-trade fantasy world, everything is going to be fine because the sheer truth of the free trade ideal will persuade everyone else in the world to embrace it.  Any hardball we do engage in is confined to helpless Third World nations and is done only because they don’t know what a big favor we’re doing in imposing free trade on them.

The fundamental premise here is that the whole world will embrace free trade, and fairly soon.   But the reality is that the world is not embracing free trade.  It is embracing a construct called FreeTradeTM, which amounts to 99 percent free trade on America’s part plus completely different policies elsewhere.  Among these are:
1) Mercantilism on the part of shrewd governments from Berlin to Taipei.

2) Imitations of American-style free trade among those dumb enough to believe in it (like the UK) or bullied into it by the economic gunboat diplomacy of the IMF in the Third World.

3) A charade called the WTO which enforces free trade on nations in category #2 and props open export markets for nations in category #1.

Would the Stabenow currency-reform bill get us out of this trap, if it passed?  As noted, it’s definitely a positive move, but it’s still just a start.  Its key limitation is that its approach is gradualist and, above all, reactive, because it depends on victimized industries filing lawsuits under the trade laws. So it will ultimately need to be supplemented with a much more comprehensive strategy. 

What America really needs to do is impose an across-the-board tariff on Chinese goods sufficient to offset not only the effects of currency manipulation, but also all the other tricks Beijing has pulled in the past and will continue trying to pull in the future.

What kind of tricks?  Not only obvious policies like tariffs and quotas, but also local content laws, import licensing requirements, and subtler measures—some of them covert, hard to detect, or infinitely disputable—such as deliberately quirky national technical standards and discriminatory tax practices. Then there are policies  that involve outright skullduggery, such as deliberate port delays, inflated customs valuations, selective enforcement of safety standards, and systematic demands for bribes.  It follows that any American response to all this must be broad-based and agile enough to prevent these various forms of circumvention. 

Some Americans are still dreaming that a boom in American exports to China will save the day.  The reality is that the dream of selling to the Chinese functions primarily as bait to lure in American companies—which are then forced by the government to hand over their key technological know-how as the price of entry. So the China market remains the mythical wonderland it has been since the 19th-century era of clipper ships and opium wars.

Beijing didn’t invent any of this mischief, by the way.  It is operating from the standard 400-year-old mercantilist playbook, albeit implemented with the exceptional cynicism of a Leninist one-party state running a capitalist economy.  Similar tactics are used—in less aggressive, less disingenuous, and less illegal ways—by governments all around the world.  The two regions where this is most clear are Germanic-Scandinavian Europe and “Confucian” Asia (China, Japan, Korea, Taiwan, Vietnam, Singapore).  

Nevertheless, even most trade critics in Congress still shy away from the sweeping measures America needs to blunt this strategy.  A large part of their reluctance to deal with the problems posed is due to special-interest pressures: many of the largest American companies are now so dependent on their overseas operations, and thus so vulnerable to pressures by foreign governments, that they have become outright Trojan horses with respect to American trade policy. As former congressman Duncan Hunter (R-CA), for years one of the outstanding critics of trade giveaways in Congress, once put it, “For practical purposes, many of the multinational corporations have become Chinese corporations.”

Over time, this will probably change, as Beijing repeatedly disillusions those who hope for it to change.  China right now is doing what the Soviet Union did over the decades after WWII, as its repeatedly obnoxious international behavior relentlessly chipped away at the not-inconsiderable sympathy it had once enjoyed.  Eventually, one simply must assume, America will lose patience.  

One hopes that by then it is not too late to solve America’s trade problem without an economic debacle of some kind.

Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95)  He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.  He was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at

© 2010 Copyright  Ian Fletcher - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - 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