On Fri, 21 Nov 2003 05:27:42 -0500, the renowned Gary Coffman
wrote:
Well, economists are saying that the yuan is about 30% overvalued.
So if it were allowed to float free, a Chinese machinist would have to
be paid the equivalent of $1.30 an hour instead of $1.00 an hour to
make the same amount he is now making.
*Some* are saying that- it's the official line. Others are saying that
it could as easily be 30% overvalued.
I think the main difference for the US if the Chinese currency was
forced up in value like Japan's was (or if it floated up) would be
that the Chinese could afford to buy more stuff- particularly
agricultural products, which is one area where the US can compete with
any other place on earth, with both price and quality.
This idea of devaluing the USD by 30% or so with respect to major
trading partners (already most of the way there vis a vis the Canadian
dollar and the Euro) seems more like a short term gain, long term pain
strategy to stimulate the economy quickly, and damn the consequences.
Together with the policy of "getting tough" with trading partners
(breaching the parts of negotiated agreements that are deemed
disadvantageous, especially to special interests, while taking full
advantage of those that are to the US advantage) and massive domestic
deficit spending it forms a kind of strategy. There are a couple of
things wrong with it- it is a game of chicken that assumes that the
trading partners have the sanity not to retaliate fully and start a
trade war (or that they are weak and prepared to eat the losses) and
secondly, if it doesn't work, there's not a lot more that can be done,
the levers the government has available are already at their stops.
There are also long-term consequences to making Americans 1/3 poorer
that will take some time to show up- such as in resource prices. The
failed Cancun round of trade talks show that even the poorest of
countries can gang up on the rest of us.
Here's one take on the trade war strategy from a Bloomberg columnist:
http://quote.bloomberg.com/apps/news...lumnist _baum
and another
http://quote.bloomberg.com/apps/news...umnist _levin
China, which seldom has a need to visibly flex her muscles much these
days, with growing regional clout, has not responded as passively or
patiently as European and Canadian targets. They immediately cancelled
a massive buying mission to the US (for "technical" reasons), and are
considering reducing their purchases of US debt instruments. As the
second largest lender to the US (after Japan) that could have negative
consequences- a dollar spiraling ever-lower is not in anybody's
interests. This is in addition to retaliation for the illegal steel
tariffs if they are not removed and the foreign sales corporation
subsidy (also ruled to breach the WTO agreement). Probably they have
made an accurate assessment that strength is the only thing that will
be respected, and weakness will be "provocative", to use Rumsfeld's
term.
If there's a big boom in the US economy real soon, all this stuff will
probably go away.. but if there is isn't, something is going to have
to give soon (probably more than one thing). Maybe some painful
changes in US domestic spending to reduce dependency on foreigners,
and more managed trade and managed exchange rates.
Best regards,
Spehro Pefhany
--
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