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Culture & Politics » soc.culture.china » Perfect Storm: China's Surplus, Support for Rogue States Spur U.S.Demands for Economic Response
| Perfect Storm: China's Surplus, Support for Rogue States Spur U.S.Demands for Economic Response [message #225428] |
Sa, 15 Juli 2006 19:33 |
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Perfect Storm: China's Surplus, Support for Rogue States Spur U.S.
Demands for Economic Response
By Andre Pachter
China Confidential
Jul 14, 2006
(chinaconfidential.blogspot.com)
The politically potent combination of continued Chinese economic
expansion at America's expense and Chinese backing for America's avowed
enemies--nuclear-armed North Korea and nuclear wannabe Iran--is certain
to fuel protectionist sentiment among American lawmakers, labor leaders,
manufacturers, and ordinary citizens.
Monday's news stirred things up. With world attention focused on
Pyongang's provocative missile tests and Tehran's likely rejection of
Western incentives aimed at ending its nuclear program, China posted a
record trade surplus with the rest of humanity--the largest monthly
trade imbalance any nation has ever recorded.
Ironically, China's announcement that its surplus in June reached $14.5
billion--a record for the second consecutive month--coincided with the
swearing-in of the new U.S. treasury secretary, Henry M. Paulson, Jr. As
chairman and chief executive of the globalizing Wall Street investment
bank Goldman Sachs, Paulson played a "pivotal role" in expanding the
firm's China business, as The New York Times noted. He reportedly made
70 trips to China during his tenure.
Which explains why China's U.S. critics were so critical of Paulson's
appointment. Putting this well known China champion in charge of
U.S.-China business is a little like putting Dracula in charge of a
blood bank, they say.
"I'd like to have him (Paulson) be very, very tough on China's currency
issues," U.S. Senate Finance Committee Chairman Charles Grassley said in
an interview on the U.S. cable television network CNBC.
The Senator was echoing complaints by U.S. manufacturers that China
undervalues its managed, or manipulated, currency by as much as 40
percent, giving Chinese companies an unfair price advantage in
international trade.
The U.S. Trade Enhancement Act of 2006 (USTEA), which Grassley, a
Republican, is sponsoring with Democratic Senator Max Baucus, would seek
to "correct for trade imbalances that are created or maintained when a
country intervenes in foreign exchange markets in an effort to prevent
its currency from adjusting to market forces." Though purportedly not
aimed explicitly at China, it would become USTEA's principal target,
given its $202 billion trade surplus with the United States in 2005--a
24.5 percent increase over the previous year.
Another bill, co-sponsored by Democratic Senator Charles Schumer and
Republican Senator Lindsey Graham, would impose a temporary tariff of
27.5 percent on Chinese goods until China eliminates its unfair trade
advantage.
U.S. Senator Olympia Snowe, a Republican, who chairs the Senate
Committee on Small Business and Entrepreneurship, responded to China's
announcement that its exports in June were worth $14.5 billion more than
its imports by condemning China's "unfair trade practices such as
currency manipulation" and urging the Chinese government to bring the
yuan in line with underlying market conditions."
Snowe said she would continue to press for Senate consideration of the
Fair Currency Practices Act, legislation she introduced "to force
nations to live up to their treaty obligations and stop undervaluing
their currencies."
The proposed legislation has three key provisions. The first would
change the criteria by which the Treasury Department is required to
enter into negotiations with foreign countries that it labels as
currency manipulators. The second would further clarify the working
definition of manipulation under the Exchange Rates and International
Economic Policy Coordination Act of 1998. The act would also instruct
Treasury to undertake an extensive examination of China's trade surplus,
with particular attention paid to China's suspect trade data, and report
on its findings.
(chinaconfidential.blogspot.com)
A bipartisan bill proposed by Representatives Tim Ryan, a Democrat, and
Duncan Hunter, a Republican, would let U.S. companies petition for
duties on imports to compensate for the effect of an undervalued
currency from the exporting nation. The bill has the support of the
largest US manufacturers' association, the National Association of
Manufacturers, despite objections by multinational companies doing
business with China.
U.S. steelmakers weighed in Thursday by urging action against Beijing at
the World Trade Organization over heavy subsidies to the Chinese steel
industry, saying it is growing so fast it threatens global economic
stability. The chairman of a large U.S. steel maker told reporters:
"Since 2000, we have lost over three million manufacturing jobs in the
United States, directly related to these subsidies and directly related
to China."
Organized labor has also been active against China. The AFL-CIO trade
union federation has filed a petition with the U.S. Trade Representative
charging the Chinese government with violently suppressing workers'
basic rights as part of a systematic effort to maintain an unfair trade
advantage in the global marketplace.
The 301 petition, named after the relevant section of U.S. trade
regulations, says China's failure to protect workers' rights amounts to
an unfair trade practice that has cost more than a million U.S. jobs.
The petition calls on U.S. President George Bush to use his authority
under U.S. law to impose sanctions against China and to implement a
system to verify compliance with internationally recognized workers''
rights.
Pro-Chinese voices in Washington are clearly concerned. They urge
caution, saying a massive currency revaluation in China could hurt U.S.
financial markets and the dollar by discouraging China from buying U.S.
securities. Opponents of tariffs see America's reliance on foreign
capital as the country's Achilles' heel, arguing that by dumping U.S.
Treasury bills and other dollar-denominated assets, China, which holds
more federal U.S. debt than any other country, could cause the value of
the dollar to plummet, plunging the US economy into a severe recession.
All told, foreign central banks, led by China and Japan, hold close to
$1 trillion of U.S Treasury bonds and bills, almost a quarter of the
publicly held U.S. debt. If China stopped buying US bonds, or sold them
outright, many economists contend, bond prices would fall, and their
yields, which move in the opposite direction, would rise, causing
mortgage rates to rise, in turn depressing home sales and weakening the
economy.
Not everyone agrees that the U.S. is so vulnerable. Former Federal
Reserve Chairman Alan Greenspan, no slouch when it comes to monetary
matters, has said that while foreign central bank holdings are large,
they are actually small compared with the total trading volume in U.S.
debt markets, and their sales could be easily absorbed. Moreover, most
foreign central bank holdings are short-term bonds, according to
Greenspan, meaning maturity of two years or less. Such yields, unlike
those on 10-year bonds, tend to be influenced more by the U.S. central
bank's monetary policy than day-to-day trading.
Other economists argue that fears of Chinese economic retaliation are
overblown because Beijing would also be hurt in the process of
destabilizing U.S. markets. If China stopped buying dollars, its
currency would rise, hurting exports--the engine driving China's
economic expansion.
In other words, China needs the American consumer to keep buying its
goods to assure continued job growth and social stability. A financial
crisis could trigger a political crisis, possibly leading to the
collapse of the regime.
Meanwhile, U.S. consumers could be tempted to take matters into their
own hands, so to speak, by boycotting Chinese goods. In principle, they
could cause considerable harm by turning against one U.S. company that
is most responsible for growing China's economy.
That company is Wal-Mart, of course, the firm that used to proudly
promote the "Buy American" motto of its founder, Sam Walton.
Today, at least 70 percent of non-food items sold at Wal-Mart stores
have a Chinese component.
Importing an estimated $18 billion in products from China each year,
Wal-Mart is China's eighth largest trading partner, surpassing entire
countries like England and Russia.
A "Made in China" boycott may seem far-fetched. But North Korean missile
launches and threats to "annihilate U.S. imperialism" with nuclear
weapons once seemed far-fetched, too.
Copyright Andre Pachter. Published with permission. Andre Pachter's blog
China Confidential may be read at: http://chinaconfidential.blogspot.com/
Copyright 2000 - 2005 Epoch Times International
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