Why Congress should be non-plussed about China’s trade surplus.<\/p>\n
One of the oldest trade disputes of this very new century has been the seismic imbalance in U.S.\/Chinese trade relations.\u00a0 American lawmakers have repeatedly beg\/threated\/legislated to try and get China to appreciate their currency, believing that the U.S. trade deficit might get reduced if the Chinese took the yuan on a romantic dinner date…or something to that effect.\u00a0 U.S. legislators have even attempted to\u00a0essentially fine\u00a0the Chinese into currency compliance – trying to hike tariffs on Chinese goods as high as 27.5%<\/a>.<\/p>\n Considering China’s latest trade surplus may exceed $20 billion<\/a>, Congress may be closer to the mood\u00a0of reviving Smoot Hawley:<\/p>\n The U.S. House Ways and Means Committee will discuss next week China\u2019s currency policy after Premier Wen Jiabao<\/a>\u2019s government limited the yuan\u2019s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections looming, legislators may push a bill letting companies seek tariffs for compensation for an undervalued yuan…<\/p>\n U.S. lawmakers including Senator Charles Schumer<\/a>, a New York Democrat, have pressed the Obama administration to demand a speedier appreciation of the yuan. The house committee will discuss<\/a> whether China has made \u201cmaterial progress\u201d on the issue and what action Congress and the administration may need to take to address the nation\u2019s exchange-rate policy.<\/p><\/blockquote>\n While the Adminstration is unlikely to approve any Congressional legislation to gode the Chinese into reassessing their currency – especially after already agreeing to do so this summer <\/a>– bills threatening a tariff war seems almost certain to be introduced.\u00a0 Similar measures were taken in 2005 and, like in the summer of 2010, resulted in the Chinese acquising to some American demands for appreciation.\u00a0<\/p>\n Legislators might as well rub a lucky rabbit’s foot to ward away the U.S. trade deficit if they believe currency appreciation will significantly impact the situation.\u00a0 The last time the Chinese appreciated their currency, the U.S. trade deficit…wait for it…grew<\/a>:<\/p>\n Recent evidence suggests that RMB appreciation will not reduce the U.S. trade deficit and undermines the common political argument for compelling China to revalue. Between July 2005 and July 2008, the RMB appreciated by 21 percent against the dollar-from a value of $.1208 to $.1464.4<\/sup> During that same period (between the full year 2005 and the full year 2008), the U.S. trade deficit with China increased from $202 to $268 billion.<\/p><\/blockquote>\n In addition to the fact that increasing the currency value won’t have any major impact on the U.S. trade deficit, and\u00a0will only fray trade relations with America’s second largest trading partner (you might be surprised to know Canada is #1<\/a>), is the reality that China gains nothing by doing so.\u00a0 With their economy slowing, in part as China encounters the same real estate\u00a0nightmare<\/a> the rest of the world has experienced, the Chinese are unlikely to want to also reduce the value of their U.S. debt holdings.\u00a0 The Chinese are already reducing stimulus efforts <\/a>and trying to avoid pumping more money into what is potentially becoming the international economy’s next major bubble to burst – China itself.<\/p>\n","protected":false},"excerpt":{"rendered":" Why Congress should be non-plussed about China’s trade surplus. One of the oldest trade disputes of this very new century has been the seismic imbalance in U.S.\/Chinese trade relations.\u00a0 American lawmakers have repeatedly beg\/threated\/legislated to try and get China to appreciate their currency, believing that the U.S. trade deficit might get reduced if the Chinese […]<\/p>\n","protected":false},"author":425,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57,105],"tags":[],"class_list":["post-13369","post","type-post","status-publish","format-standard","hentry","category-economy-and-the-market","category-first-ringer"],"_links":{"self":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/13369","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/users\/425"}],"replies":[{"embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13369"}],"version-history":[{"count":1,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/13369\/revisions"}],"predecessor-version":[{"id":13370,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/13369\/revisions\/13370"}],"wp:attachment":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13369"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13369"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13369"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}