China, currency manipulation, tariffs.

[Jacobtm]

Interestingly, China's currency manipulation, putting tariffs on them etc. is not an issue that has clear partisan dividing lines.

Early in Obama's terms, he put a couple of random tariffs on Chinese imports, car tires among them. Why he chose to add a couple of tariffs to a small number of products was a bit confusing, it didn't really affect much, but made the American car tire industry happy.

Currently Mitt Romney is saying he'll bring China before the WTO as a currency manipulator and will apply broad tariffs on Chinese goods.

Of course, if China's currency was suddenly allowed to float or we slapped enough tariffs on Chinese imports to make the price ''fair'', the American consumer would be hit very hard.

I do believe that their currency should be allowed to float ultimately, and that it will help rebalance the world economy, encouraging Chinese consumption and U.S. production.

But in the short term, China's cheap currency allows us to buy cheap stuff. If that went away, people would hurt for quite a while during the transition

[Napoleon]

No tariffs!

[Beet]

For the past few weeks, the Chinese yuan has been trading lower in the Hong Kong informal markets than the pegged rate, and futures are no longer indicating appreciation. China's exports have fallen and imports have risen, and the real exchange rate has risen faster than the nominal exchange rate due to inflation. That, plus the fact that capital is now fleeing China to the US, means that the Chinese yuan is no longer undervalued. If it was allowed to float, it might very well sink.

[Jacobtm]

If it was allowed to float, it might very well sink.

Cheaper sh**t!

[Wonkish1]

Interestingly, China's currency manipulation, putting tariffs on them etc. is not an issue that has clear partisan dividing lines.

Early in Obama's terms, he put a couple of random tariffs on Chinese imports, car tires among them. Why he chose to add a couple of tariffs to a small number of products was a bit confusing, it didn't really affect much, but made the American car tire industry happy.

Currently Mitt Romney is saying he'll bring China before the WTO as a currency manipulator and will apply broad tariffs on Chinese goods.

Of course, if China's currency was suddenly allowed to float or we slapped enough tariffs on Chinese imports to make the price ''fair'', the American consumer would be hit very hard.

I do believe that their currency should be allowed to float ultimately, and that it will help rebalance the world economy, encouraging Chinese consumption and U.S. production.

But in the short term, China's cheap currency allows us to buy cheap stuff. If that went away, people would hurt for quite a while during the transition

Well a few things I should point out that many may not know:

1) China keeping its artificially devalued essentially acts as a purchasing power tax on its population and a purchasing power subsidy on our population

2) If you keep your currency devalued, yes you can keep low capital cost manufacturing more competitive, but it makes you horribly non competitive in high capital cost manufacturing. Ever wonder why China hasn't been able to break into much tech manufacturing, auto manufacturing(of which they've been trying for years), planes, ships, etc.? The reason is because they've made the cost of purchasing expensive machinery and very high skill people way to expensive.

3) Market forces are now catching up with their property markets and exporters and will either force them to change or enter a period of Japan like decay. So it really isn't to much of a long term issue

4) When we buy Chinese goods they have a surplus of dollars in China. Now they have to use that money to buy something in the US. In most cases they are buying treasuries and a few other bonds and equity positions. That should allow the United States to redirect capital to an efficient place and build up new industries really fast, but instead what happens is the Federal Reserve creates an artificially low price of money and the capital shows up in asset bubbles instead of almost exclusively prudent investments.

5) Lets point out that the Chinese actually have allowed their currency to appreciate considerably over the last couple years and we are actually the ones that have allowed our currency to depreciate courtesy of the Fed. So increasingly we are the problem.

[Wonkish1]

For the past few weeks, the Chinese yuan has been trading lower in the Hong Kong informal markets than the pegged rate, and futures are no longer indicating appreciation. China's exports have fallen and imports have risen, and the real exchange rate has risen faster than the nominal exchange rate due to inflation. That, plus the fact that capital is now fleeing China to the US, means that the Chinese yuan is no longer undervalued. If it was allowed to float, it might very well sink.

I expected that to happen. Who wants to keep money in China today when the only real choices are an overvalued equity market, probably the largest property bubble in world history, and mafia like "shadow banks" that offer extremely high interest rates to the businesses that have been cut off by the state owned banks and aren't willing to just close shop today.

[Jacobtm]

As oil rises, and with it the cost of shipping, we should see less and less benefit to importing everything all the way from China.

Colombia's fuking pumped.

Of course China's already in the game:

http://www.time.com/time/world/article/0,8599,2049645,00.html

[Wonkish1]

If it was allowed to float, it might very well sink.

True, but that wont last forever. After their markets correct they need to allow their currency float afterward otherwise their exporters aren't going to get that major benefit like they've had before. Limited world demand and rising input costs would put a cap on growth if they tried to keep pushing this export based economy crap.

There future growth lies in improving domestic production for domestic consumption that requires that naturally appreciating currency when they make their recovery.

[dead0man]

I don't know, it's pretty nice to have foreign govts subsidize our disposable sh**t for us.  On the other hand, we really shouldn't trade with states that treat their people like sh**t like the PRC does.

I'm torn.

[phk]

No tariffs or quotas.

[Jacobtm]

I don't know, it's pretty nice to have foreign govts subsidize our disposable sh**t for us. 

You don't think we have enough worthless disposable stuff?

People would be better off investing in quality over quantity.

You don't need 40 ugly $5 t-shirts. Get a few nice shirts, look good, wear quality stuff, y'know, keep it classy.

[Stardust]

No tariffs or quotas.

[dead0man]

I don't know, it's pretty nice to have foreign govts subsidize our disposable sh**t for us. 

You don't think we have enough worthless disposable stuff?

People would be better off investing in quality over quantity.

You don't need 40 ugly $5 t-shirts. Get a few nice shirts, look good, wear quality stuff, y'know, keep it classy.

Maybe, but isn't it better to have both options?  Let the consumer decide, ya know?  Sometimes its smarter to buy a $20 DVD player 3 different times than it is to buy a $300 one once.  Maybe not for you or me, but for a 7 year old to have in his room it is.  Sure 40 ugly tshirts are going to be more worthless than a nice one that costs $75 to you or another westerner over concerned with his appearance, but if you're buying shirts for a classroom full of 13 year old girls in Africa.....

[Jacobtm]

I don't know, it's pretty nice to have foreign govts subsidize our disposable sh**t for us.  

You don't think we have enough worthless disposable stuff?

People would be better off investing in quality over quantity.

You don't need 40 ugly $5 t-shirts. Get a few nice shirts, look good, wear quality stuff, y'know, keep it classy.

Maybe, but isn't it better to have both options?  Let the consumer decide, ya know?  Sometimes its smarter to buy a $20 DVD player 3 different times than it is to buy a $300 one once.  Maybe not for you or me, but for a 7 year old to have in his room it is.  Sure 40 ugly tshirts are going to be more worthless than a nice one that costs $75 to you or another westerner over concerned with his appearance, but if you're buying shirts for a classroom full of 13 year old girls in Africa.....

I'm a free-market guy.

I worry that in the free market, many Americans make objectively bad choices. The 2/3 of Americans who eat themselves into being overwight/obese mainly do it on inexpensive, low quality food. They'd be better off spending their food dollars on fewer calories, spent on higher quality food.

I think the same can be said of many people's consumer good choices. They buy something cheap, that in the end was a waste of money because it doesn't work. We've all had the experience of buying something cheap over something expensive only to have it break or be so low quality as to be useless.

So if China's currency is undervalued, it ends up as a market distortion incentivizing this kind of cheap crap. So better to not have this kind of market distortion that leads us towards cheap stuff.

All I'd like is the currency to float, to reflect it's true value, so that their goods reflect their true prices. Free markets yall.

[Napoleon]

^^^^

[opebo]

Tariffs and quotas!

[dead0man]

I'm a free-market guy.

That's great, me too.

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Of course they would.  They'd also be better off watching PBS instead of MTV.  I'm a free-market guy, I think they should be able to buy (and watch) what they want.

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Of course, and we've also all spent money buying a label too.  But I'm a free-market guy, I think people should be able to blow their own money on whatever stupid sh**t they want.  Whether that be iPods or Chinese Wal Mart crap.

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k

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I wouldn't have a problem with that either, but in the mean time I'm going to enjoy them subsidizing my cheap crap.

[Link]

I'm a free-market guy.

I worry that in the free market, many Americans make objectively bad choices. The 2/3 of Americans who eat themselves into being overwight/obese mainly do it on inexpensive, low quality food. They'd be better off spending their food dollars on fewer calories, spent on higher quality food.

I totally agree.  I like the free market but increasingly I'm beginning to realize that most Americans simply are not built for it.  If people had access to good information and the intellect to look it up and use it I would be for a lot more free market solutions.  Unfortunately I know we are going to eat and smoke our way into terrible shape.  After which we will decided to not buy health insurance (no individual mandate) and end up in an ER and cost the system tens of thousands of dollars more than if we just followed the Michelle Obama diet and work out plan.

I don't know, it's pretty nice to have foreign govts subsidize our disposable sh**t for us.  On the other hand, we really shouldn't trade with states that treat their people like sh**t like the PRC does.

I'm torn.

Ahhh the ol' flat panel vs human rights conundrum.  Who amongst us has not struggled with this dilema.  A quick tour of my living quarters will tell you where I fall on this one

For the past few weeks, the Chinese yuan has been trading lower in the Hong Kong informal markets than the pegged rate, and futures are no longer indicating appreciation. China's exports have fallen and imports have risen, and the real exchange rate has risen faster than the nominal exchange rate due to inflation. That, plus the fact that capital is now fleeing China to the US, means that the Chinese yuan is no longer undervalued. If it was allowed to float, it might very well sink.

I'm not sure how true this is.  That's more a problem of my ignorance than a question of the veracity of the the statement.  However for quite some time I have known that the cries of massive Chinese currency manipulation have been over done in the United States.  The reports that say the alleged devaluation isn't anywhere near as much as Donald Trump makes it out to be don't get much coverage for some reason.  Maybe they should get a reality TV host to say it and it'll have some meaning to the general population.

Well a few things I should point out that many may not know:

1) China keeping its artificially devalued essentially acts as a purchasing power tax on its population and a purchasing power subsidy on our population

2) If you keep your currency devalued, yes you can keep low capital cost manufacturing more competitive, but it makes you horribly non competitive in high capital cost manufacturing. Ever wonder why China hasn't been able to break into much tech manufacturing, auto manufacturing(of which they've been trying for years), planes, ships, etc.? The reason is because they've made the cost of purchasing expensive machinery and very high skill people way to expensive.

3) Market forces are now catching up with their property markets and exporters and will either force them to change or enter a period of Japan like decay. So it really isn't to much of a long term issue

4) When we buy Chinese goods they have a surplus of dollars in China. Now they have to use that money to buy something in the US. In most cases they are buying treasuries and a few other bonds and equity positions. That should allow the United States to redirect capital to an efficient place and build up new industries really fast, but instead what happens is the Federal Reserve creates an artificially low price of money and the capital shows up in asset bubbles instead of almost exclusively prudent investments.

5) Lets point out that the Chinese actually have allowed their currency to appreciate considerably over the last couple years and we are actually the ones that have allowed our currency to depreciate courtesy of the Fed. So increasingly we are the problem.

I don't know if I 100% agree with everything in your post but I certainly strongly agree with the overall message.  The idea that a currency manipulation is a "free" or "cheap" one way path to easy success without any consequences is ridiculous.  As I've said before China is going to have a lot of problems down the road (ie huge population, a lot more men than women, low per capita GDP, pollution, asset bubbles, etc).  The country's per capita GDP is barely more than Albania's.

[Snowstalker Mk. II]

I'd support more tariffs against China. They're the problem, not regulations or corporate taxes.

[phk]

I'd support more tariffs against China. They're the problem, not regulations or corporate taxes.

Xenophobia is not a healthy thing.

[Napoleon]

Deadman you don't have to be such a douche to get your point across. Jacobtm definitely takes the free market position here though. What other subsidies do you support?

[Wonkish1]

Jacobtm definitely takes the free market position here though.

I don't think you can reasonably make that claim. Debatable at best, the exact opposite at worst(from your perspective).

[opebo]

I'd support more tariffs against China. They're the problem, not regulations or corporate taxes.

Xenophobia is not a healthy thing.

Its not xenophobia - one wants to impose tariffs on them not because of their halitosis, loud talking, or bad driving, but because of their predacious trade practices and abuse of human and worker rights.

[Napoleon]

Jacobtm definitely takes the free market position here though.

I don't think you can reasonably make that claim. Debatable at best, the exact opposite at worst(from your perspective).

Wanting the market to determine currency exchange rates is not a more free market position than gloating about the opposite because you like getting more cheap crap? Doubtful.

[Wonkish1]

Jacobtm definitely takes the free market position here though.

I don't think you can reasonably make that claim. Debatable at best, the exact opposite at worst(from your perspective).

Wanting the market to determine currency exchange rates is not a more free market position than gloating about the opposite because you like getting more cheap crap? Doubtful.

No if that was the case I would agree with you that is the free market position. But responding to another party not doing that with tariff's and quota's would be debatable at best.