Asiatic Adventurism, Part I

Just when we think Democrats can’t do any more to damage the economy and Republicans cannot be any more gullible, the boys and girls in the House of Representatives get together, 348 to 79, to pass a bill so stupid the mind reels. The only thing I can think of worse would have been a declaration of war against a land mass in Asia. Uh…come to think of it, that’s what they did, without the threat of invasion and intercontinental ballistic missiles. They declared a currency and economic war. One which I expect to be every bit as successful as the punitive tariffs on tires some months ago.

Mr. Obama fired the opening salvo last week, urging Chinese Premier Wen Jiabao “to speed up the revaluation of the yuan, telling him in a two-hour meeting at the United Nations that the slow pace of reforms was affecting both global and U.S. economies.”

I’m going to give you a lot of quotes in this article because they are simply too hilarious to pass up. According to CNNMoney, “Lawmakers say China’s currency is unfairly cheap and passed a measure Wednesday that opens the door to tariffs that aim to help U.S. companies compete. The legislation, which authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies, passed the House of Representatives by a vote of 348 to 79. The Senate, however, is not expected to take up the issue until later this year.” The article continues with a jibe at Republicans: “The bill got support from both sides of the aisle, a rarity in recent sessions, with Democrats framing the legislation as a jobs issue,” and follows immediately with a magnificent bit of economic insight from Representative Xavier Becerra, Democrat, of California: “We can talk, or we can act. International trade is a high stakes, cut-throat business, and every time we simply talk, the other side acts, and every time they act, an American loses a job.” Perhaps he should simply stop talking?

Honestly, I had no idea how incredibly funny left wing fiscal policy can be. Consider this gem: “China said this year it would allow its currency, the yuan, to trade in a wider range against the dollar. But the currency has scarcely appreciated since then, inflaming critics who charge the undervalued yuan helps steal U.S. manufacturing jobs.” No explanation is given for how the Peterson Institute of International Economics came up with a figure of a 24% discrepancy in the relationship between the two currencies, but the gang on the Hill believes it. Funny me…I thought foreign exchange rates were set by a bidding process on the FOREX. If all we have to do is declare the value of our currencies, what’s the problem? A simple Congressional resolution would do it. “Resolved: henceforth the US$ shall trade against the yuan at a ratio of 3:1 instead of 4:1, Sincerely yours, Congress. P.S. We really mean it.”

Let’s make it even simpler: how many dollars does it take to buy a barrel of oil? How many yuan are required? That shows us the Arab world’s opinion on the relative values of the currencies, if no one wants to believe world currency exchange rates. Obama’s position is claiming “undervaluation” drives up the price of our goods in China and makes Chinese products cheaper in the USA than they would be if a “fair” exchange rate were used. Okay, back to my complex economic model, compare the price of any Chinese export to America and the same item sold in any two other countries chosen at random. Do the Chinese price items differently according to the market or the currency used? Could the same sum not buy an identical amount of the third parties’ currencies? If so, then, yeah, the Chinese are probably playing dirty pool and our choice is to stop buying from them. If not, then this is just another ploy to raise revenue and stand up nobly declaring Demmies are the “working man’s” friend. CNN proceeds to this gem: “The House vote caps years of frustration for lawmakers as the United States has continued to shed manufacturing jobs, and promises of reform from the Chinese have failed to result in policy changes.” Wait a moment…didn’t we just read that China promised this year to reevaluate? Has anyone other than the current crop of solons carped about this? Seems to us that Reagan, Bush, and Clinton were all in favor of increased trade with China. We’ve been working on this since the time of RMN. Other than one on one I simply do not see how China can change the perceptions of currency traders and foreign nations concerning the value of the yuan.

Here is a real prize from Tim Ryan, D-Ohio, demonstrating a terrific grasp of the politics of envy and pipe dreams: “If this risks upsetting the People’s Republic of China, so be it…Whether you’re a Democrat or a Republican, a liberal or a conservative — millions of good-paying jobs have been lost and hundreds of thousands of families across this country have suffered as a result of China’s unlawful trade policies.” No, Tim, we cannot risk upsetting China lightly, partially because we owe them three-quarters of a trillion dollars. Far more to the point, those millions of good-paying jobs were not stolen by China, they were driven out of America by increasing taxes, regulation, and legislation. The current economic mess stems from those and government interference in banking, devastating “green” demands, and Bernanke’s policies.

The Senate will not consider the issue until later in the year, which isn’t going to keep China from reacting quickly. That great economist, Charles Schumer, D-NY, pontificated, “We must take decisive action against China’s currency manipulation and other economically injurious behavior. (Ed. Note: unspecified) China is merely pretending to take significant steps on its currency,” Schumer said. “This sucker’s game is never going to stop unless we finally call their bluff.” In my experience, that is the sort of rhetoric heard on school grounds and probably between Crips and Bloods with vocabulary adjusted suitably to include “diss” and references to the opponents mothers. It is not the language of diplomacy or economics, but it is pre-election posturing. The proponents are hoping to make some money (the government keeps tariffs), but this is politics, not so pure, but simple. You have been told that you cannot judge a book by its cover, but in very large part you can make a quick decision on the advisability of any given bit of legislation by seeing who supports it. Don’t agree if the answer is “…trade groups and unions cheered the bill’s passage. AFL-CIO President Richard Trumka issued a statement of support and Scott Paul, the director of the Alliance for American Manufacturing echoed the message. “This is one of the most pleasantly lopsided trade votes in recent history,” Paul. “Voters are mad and Congress is finally responding.” I particularly like Mr. Paul’s statement. The Statists have finally figured out what the TEA Party is all about. Voters aren’t mad about runaway spending, higher taxes, higher costs of living, socialized medicine, and increasing regulation, by golly, we’re feeling menaced by the Yellow Peril, and it’s about time Congress did something about it. I feel that way every time I walk into my friendly “Everything $1.09” store. Dirty bunch of commies, taking advantage of me that way.

I’ll close this preliminary discussion with another quote from the entrepreneur in the White House: “The reason I’m pushing China about their currency is because their currency is undervalued,” Mr Obama orated. “…people generally think they are managing their currency in a way that makes our goods more expensive to sell there and their goods cheaper to sell here.” He added, further, that “the resulting imbalance is a major factor contributing to the U.S. trade deficit.” I stopped at this point to take dear Charles to task, chastising him fiercely for having become a bore who drones on endlessly about how the Chinese are manipulating the currency exchange, threatening working class Americans, and destroying our way of life by offering four dollar bathrobes. Charles just grinned, of course, knowing full well that neither one of us had discussed China other than to speculate on the possibilities of collapsing bubbles and whiffs of rebellion in the air.

I’ve started with the light side because all of this is funny as indicative of what passes for thinking amongst Statists. Want more money? Pass another tax. Election prospects looking grim? Whip up the populace over an outside threat. Next time we’ll get into psychology and the real effects declaiming to the fans will have on the world you and I live in. They aren’t pretty, and it is a lot easier to start a war than it is to stop one. Mr. Obama is in dire need of a swift, victorious war, but this isn’t it.

It doesn’t help that China is overreacting, too, starting with accusing us already of “dumping product” on the Chinese market, in particular auto parts and chicken parts. I was under the impression that our primary poultry export to that portion of the world is the feet of chicken, which are considered a delicacy there and good for nothing other than grinding up for pet food after simmering to get a little coloring for chicken broth in the USA.

When the Chinese fling chicken feet on the table, I think they’re serious.

Linda Brady Traynham
Whiskey & Gunpowder

October 6, 2010

P.S.: If you really can’t wait until next time and/or do not know why we do not wish to engage in trade wars, it seems to me that my discussion of the tire fiasco is archived under “Smoot Hawley Must Ride Again.” The reasons haven’t changed.

The Daily Reckoning