Taking China to the WTO
We are supposed to believe that the Treasury Secretary led a huge delegation to China only a few months ago, and was already so disappointed with the reaction that now he has decided to kick off a trade dispute in the WTO? I'm dubious. For one thing, diplomacy, and especially diplomacy with China, requires a great deal more than a few months of effort. Second, for the Treasury Secretary to turn over the initiative to the Trade Ambassador is not a sign of influence in the Administration; it looks like Secretary Paulson has been overruled. Third, the whole effort in the WTO has little chance of producing any immediate effect on China's behavior, or perhaps any effect at all. It's hardly likely to produce currency adjustment, the Secretary's stated goal.
The economic relationship between the United States and China is the big topic of the next twenty years.
Not just China, but mostly China, will take the jobs, or lower the wages, of as many as 40 million Americans. That's the main thing going on here, and while a tough stance on fair trade is important it's not at all a complete answer to the larger question of how to handle this monumental disruption of the status quo. What is going on between the two countries at the government level is very hard to see just now, but I doubt that the press reports are the whole story. Indeed, they are remarkably unrevealing. Meanwhile, outside of government, Chinese mercantilistic competition is accelerating in power and impact.
The administration is filing these cases with China now in order to appease Democrats prior to pushing for reauthorization of President Bush's fast track authority for economic agreements.
April 9, 2007 11:32 PM | Reply | Permalink
I have to plead a high level of ignorance on this and maybe you could help me set a lay man's understanding of a country's currency rate.
First thing, they talk of monetary "standards." It seems like a misnomer - since it seems to be set on arbitrary market forces and influenced a lot on risk and chance. Doesn't China keeping their standard as it is because they can? They are taking a risk that no one is going to force them to reassess it.
With that in mind, why are we going to China and asking that they change their policies? Shouldn't we be going to the other foreign exchange markets and establishing a rate which we think is fair?
How far off am I? How much diplomatic levity is controlling this? Like you said, this will effect so many Americans. Many more in a direct way than the Iraq war will. But as we get at least the broad issues of the Iraq War, we haven't a clue on the things that are at play in the currency markets. ABC Nightly News with it's human emotional hook = attention. PBS Nightly Business Report = glazed boredom.
April 10, 2007 11:34 AM | Reply | Permalink
Living in China right now, it amazes me how little Americans understand this beast. China is a monster, with the power to make America economically irrelevent, and I am very dissapointed with progressives for not getting ahead on this issue.
This trade dispute is a sham. A complete sham. Paulson knows it, and so should Democrats. This pithy squabble (which is impossible to win) only marginalizes our power and ruins the opportunity for fruitful dialogue. The only thing that can save jobs in America is education, end of story. I can elaborate on the topic upon request, but after a lot of research it has become apparent that soon education is only comparitive advantage we will have left.
April 10, 2007 11:36 AM | Reply | Permalink
In layman's terms: Chinese money is pegged to a basket of foreign currencies, meaning that no matter what, one chinese yuan will be worth X number of a given foreign currency (dollars, euros, whatever.) In all other large economies, the currency is allowed to be traded freely on open markets. The values shift based on market needs. For example, if I want to invest in german bonds, i take my USD and buy Euros, then use Euros to buy the bonds. This transaction effects the price of the currencies in the exchange market. Because China's currency is pegged, transactions DO NOT affect the yuan's value. Since everyone is investing in China and buying it's goods, the yuan should be appreciating. Since it cannot, it is left undervalued. This is deemed unfair because it lowers the relative cost of chinese goods and labor, leading to 'unfair' trade advantages. (The stated reason the Chinese peg the5 currency is to prevent rampant speculation and promote fiscal stability, both of which it duly achieves.)
April 10, 2007 11:43 AM | Reply | Permalink
But can't the Big 3-5 Federal/National Banks force China's hand?
China wants our investment and monies of trade. If the Federal Banks pressure for more equality in the exchange rates, what can China do? Do we want access to them so much not to take this route? If we manage our rates, why can't we manage the foreign exchange rates through this?
April 10, 2007 12:43 PM | Reply | Permalink