02/04/10 Baltimore, Maryland – We write today’s edition with the ghosts of Smoot and Hawley lurking over our shoulder. And Winston Churchill whispering “jaw-jaw” is better than “war-war.”
Jawing is what United States and China have been doing for the last 24 hours. Very indirect, beating-around-the-bush jawing, but jawing nonetheless.
Yesterday, President Obama told Senate Democrats he hoped to pressure China to abide by trade agreements, without specifying what agreements China was breaking or how. And then he implied the U.S.-China trade balance is out of whack because the yuan is overvalued relative to the dollar, without mentioning China by name.
“One of the challenges that we’ve got to address internationally is currency rates,” said the president, “and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price.”
Today, China hit back, with equally glancing blows. A spokesman for the foreign ministry said the value of the yuan is not the main reason for China’s trade surplus with the U.S., without specifying what that main reason is. He’d only say, “At the moment… the level of the yuan is close to reasonable and balanced.”
Ordinarily, we’d blow this off. A year ago, not-yet Treasury Secretary Tim Geithner dropped the incendiary term “currency manipulation” during his Senate confirmation hearings. He then backed off. And Chinese students laughed at him. You remember all that.
Back then, the Obamanians were high. They were going to rescue millions of homeowners from foreclosure. Thought they’d already whipped unemployment. And had a supermajority to cram health insurance reform through.
What a difference a year makes. Now the electorate is looking surly. Nothing like picking a fight with your largest creditor to get voters riled up again. Couple this latest exchange with the tension-building factors we cited on Tuesday — especially the sale of U.S. military equipment to Taiwan — and we appear to sit at a more delicate juncture than we did a year ago.
What a mess. But, oh, so much fun, too!
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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China is a sleeping giant, Napoleon once warned. “Let her sleep, for when she wakes she will shake the world.”
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Nothing like paying a waking giant with worthless fiat currency. Prepare for some shakin’.
The Yuan is not undervalued as most countries don’t have a large trade deficit with China. Just those free spending americans. Perhaps you need to devalue
Our “marketeers” are such cry-babies” along withe government officials who have to blame en “external” entity for our own, self=inflicted wounds…..
“Free Marketeers” have no guts at all!!!!
Dean
Doesn’t the EU and ECB think the Yuan is undervalued also ?
The USA and the west cannot go on importing Chinese goods without increasing their exports to pay for them. That is surely a plain fact !
So the west either need to start to drop their wages and all other costs, or place tarifs on Chinese goods.
Because the west will not be able to go on increasing exports – China now makes everything, even jet airliners. Windpower turbines, solar energy and electric cars and bikes !
Simple solution. Repudiate all the US debt in Chinese hands followed by a complete embargo of all Chinese goods entering the US. Sit back and watch China descend into chaos.
Chinese chaos will bankrupt untold numbers of US companies which will have their investments(factories) confiscated in the process…Which is worth more?
@ memo
Very well said. And do it now before their military stands all the way up.
We are beyond the point of no return, sold out by our crooked politicians and the mega corporations. How many defective products do we have to put up with before we wake up and stop shipping all of our jobs to asia. What are we smoking how in the world can a country run such high deficits on top of importing everything and sending more money out of the country. So maybe the little light in your head will go off before its to late oh wait the little light was made in China and already defective when you bought it. AMERICANS ARE STUPID, China took Karl Marx at his word the capitalists will buy the shovels from you to bury themselves HOW TRUE WHEN IT COMES TO CHINA.
China= 1 billion people, with most of the female population missing
America= 300 million people, majority of women
Sounds like the most brilliant thing to do would be to provoke our largest creditor who wouldn’t have any problems promising young military men a wife for their service.