130 Congressmen Join Paul Krugman's Campaign To Rid The World Of Chinese CNY Manipulation Once And For All, Consequences Be Damned

Tyler Durden's picture

By now everyone has undoubtedly been reading reams of primary and secondary opinions based on Krugman's discussion that it is time to play hardball with China on the FX "manipulation" issue. Retaliatory implications aside (and we are confident China will be full of these) it was ironic that one commentator on CNBC today pointed out that since the CNY is pegged to the USD, shouldn't America be looking at itself first when it comes to currency manipulation, before blaming others. In essence, China is merely taking advantage of the exploding US balance sheet, and adding on top of it its own fiat printing largesse, yet offset by its positive trading surplus. Certainly, Bernanke should have thought of that before it set off on the greatest experiment of failed Keynesianism ever. But now that China has served its purpose and was the economic rebound leader for the past year, it may no longer be as needed. Rhetoric aside, consider this well thought-out response to Krugman, appearing earlier in The Economist, which is a deft rebuke to Krugman's call to arms:

Mr Krugman seems entirely uninterested in the domestic political
constraints facing China's leaders. He doesn't consider for a second
the possibility that a bullying strategy on America's part might make
China less likely to do what the administration wants.
Why on
earth would a nationalistic nation anxious to establish itself as great
power want to come off to all observers as a weakling in the face of
American bluster? Mr Krugman would paint China into a corner, forcing
them to take steps detrimental to all involved.

No matter the logic though. The people have spoken and they want CNY blood (or the inverse as the case may be -what is that: lymph?). And not just the people. We have just received a copy of a letter signed by 130 Congressmen, and sent to Tim Geithner and Gary Locke, urging the Treasury to immediately address the "growing problems associated with China's continued currency manipulation" and in essence serving as a springboard to the latent protectionism brewing between China and the US, but never really escalating into all out trade war.

March 15, 2010

Dear Secretary Geithner and Secretary Locke:

We write to express our serious concerns about China's continued manipulation of its currency. By pegging the renminbi (RMB) to the U.S. dollar at a fixed exchange rate, China unfairly subsidizes its exports and disadvantages foreign imports. As we work to promote a robust U.S. economic recovery, it is imperative that we address this paramount trade issue with all available resources. We urge your agencies to respond to China's currency manipulation with the actions outlined in this letter. Doing so will allow American companies and workers to compete fairly against their Chinese counterparts and will boost U.S. economic recovery and growth.

The impact of China's currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors. U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports.  The devaluation of the RMB also exacerbates the already severe U.S-China trade deficit. Statistics show that between January 2000 and May 2009, China's share of the U.S. trade deficit for non-oil goods grew from 26% to 83% -- an untenable pattern for American manufacturers. And finally, China's exchange-rate misalignment threatens the stability of the global financial system by contributing to rampant Chinese inflation and accumulation of foreign reserves.  For these compelling reasons, we ask your agencies to pursue the course of action below.

First, we urge the Department of Commerce to apply the U.S. countervailing duty law in defense of American companies who have suffered as a result of the currency manipulation. The U.S. is permitted to respond to subsidized imports where the elements of a subsidy are met under the countervailing duty law.  The countervailing duty law outlines a three-part test to identify the presence of a countervailable subsidy:  1) that it involves a financial contribution from the government; 2) that it confers a benefit; and 3) that is specific to an industry or a group of industries.  China's exchange rate misalignment meets all three parts of this test and therefore merits the WTO-permitted application of countervailing duties.

Second, we ask the Department of Treasury to include China in its bi-annual agency report on currency manipulation. Since 1994 Treasury has not identified China as a country that manipulates its currency under the terms of the Omnibus Trade and Competitiveness Act of 1988 ("Trade Act of 1988"), but Secretary's Geithner testimony to the Senate acknowledging that fact surely justifies the inclusion of China in the report. After labeling the country as a currency manipulator, Treasury should enter into negotiations with China regarding its foreign exchange regime. These combined actions will signal the government's willingness to take decisive action against China's currency manipulation, including
the potential filing of a formal complaint with the World Trade Organization.

The recommendations identified above must be done in concert with intense diplomatic efforts, not only with China but also with the IMF and multi-laterally with other countries. Through a combined strategy of legal action and international pressure, it is possible China will revisit its undervaluation of the RMB. If these efforts are not successful, we ask the Administration to consider all the tools at its disposal, including the application of a tariff on Chinese imports, to respond to China's currency manipulation. The economic impact of the RMB undervaluation on American businesses and workers is too great for the Administration not to pursue a comprehensive effort. 

This economic downturn has underscored the pressing need to promote policies that protect U.S. jobs and U.S. businesses. Addressing China's manipulation of its currency must be a critical part of our strategy to rebuild our economy and establish safeguards against future financial crises. The Administration has the legal ability and resources to protect American businesses in the face of China's RMB devaluation, and we urge you to exercise this authority expeditiously.

Thank you for your consideration of this letter.  We look forward to your response.

We are confident Wen Jiabao will be ecstatic about this development.

In the meantime, just in case someone missed Krugman's trade war rhetoric, here is a 12 minute clip from Bloomberg TV in which the NYT op-ed author summarizes his latest view on why the latest satanic speculator is none other than the Chinese government itself.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Caviar Emptor's picture

In today's Alarming News:

"Net foreign purchases of long-term securities totaled $19.1 billion in January, as net purchases of private corporate bonds fell by $24.8 billion, the biggest drop on record."

The focus has been on Treasuries, this kind of got lost in the shuffle, but signals a potential credit market inflection point.

cougar_w's picture

[lymph?] Eww. For some reason that is way TMI.

China is going to rattle their sabers but there's not much they can do, being bound as they are to the global economy. And the Taiwan reaction just makes them look like hayseeds living in the past; guys, either put it behind you or it's still 1965 and you got Mao and mass graves. Now choose. Hint: WalMart doesn't have an aisle full of Mao bobble-head dolls. Word.

Gonna be a fun summer for China. Oh yeah.

BlackBeard's picture

yeah you tell an authoritarian regime what to do Krugman! you tell em! ooohh naivite....


Short Economic Nobel prize winners.

monmick's picture

Like my father used to say to me; too much education, not enough common sense (usually followed by a slap upside the head)...

lsbumblebee's picture

I thought Krugman was some sort of liberal. He sounds like a "America can do no wrong love it or leave it" Republican to me.

docj's picture

There's a liberal Democrat in the White House.  So in Paulie WallNutz eyes America can indeed do no wrong.

lsbumblebee's picture

Further blurring of the lines I guess.

AnonymousAnarchist's picture

Paul is a statist, plain and simple. Sometimes it's hard to tell which team a statist plays for but they're all pretty much the same.

Bill Anderson has a blog dedicated to PK called Krugman in Wonderland.

Ragnarok's picture

Let the pissing contest begin in earnest.


China should just sell a couple treasuries and purchase some gold on the open market, that ought to shut'em up for a while.

faustian bargain's picture

I wonder if they'll skip right to the main event. Maybe it won't happen, but I imagine it would be a spectacle.

Ragnarok's picture

China's not ready yet, but the game of chicken has already started.

tmosley's picture

I wonder if the Chinese have an equivalent proverb to "Give them enough rope, and let them hang themselves".

If they cut the peg, the US will collapse.  The length of time that it takes will be measured not in years or months, but hours or days (possibly even minutes).

Absinthe Minded's picture

It's really sad, us blaming them for our failure to rein in our debt crisis. I love my country but it just keeps getting further and further away from what our founding fathers vision of our country was supposed to be. We are really in trouble but nobody sees it. This Healthcare reform is just a ludacrious vision of Obama and Pelosi. If it passes things will change for the worse. Look at Mass. they are living it now, companies can't handle the price of reform. I have a really good plan where I work, I'm lucky and I realize it, but what will happen under this reform? Will they say," Screw it let's just pay the $3000 penalty and hand the coverage to the government?" Here we are on the brink of losing our AAA rating and they want to take out another trillion dollar mortgage for HC. Oh yeah, I suppose if they bribe S&P and Moody's well enough we'll keep our rating. How long before countries realize the ratings are a farce? First sign of SHTF I am cashing out my 401K for gold, silver, ammo and seeds. God help us all.

tomdub_1024's picture

I already done cashed...just sayin'...:) Sucks to miss out on the bouncing mortified feline, though...meh...I lost that attachment long ago.

Hulk's picture

Problem is, Absinthe Minded, by the time we realize that its time to cash in the 401k's or buy gold, it will be too late.

$401k's will either be decimated or locked down by Uncle Sam

and Gold\Silver will not be available.

The time to make the cash out and buy decisions is now

Mr Lennon Hendrix's picture

DAMN YOU KRUGMAN!!!!!!!!!!!!!!!!!!!!!!!

Ragnarok's picture

The only feathers this gov't hasn't ruffled lately is unions and Palestinians.  Why can't we get and ideologue who's sole passion is shrinking gov't.

Postal's picture

Wait, I'm confused (I'm confused a lot now that I've found ZH). Didn't China just sell a barge full of Treasuries because we pissed them off with the whole Taiwan arms deal thing? Why are we continuing to poke them with a stick?

faustian bargain's picture

Maybe the PTB are looking for a distraction/scapegoat, anywhere and everywhere but here in the US.

"It's Not Our Fault!!!"

Millivanilli's picture

Krugman is a dingleberry.

THE DORK OF CORK's picture

Every time I zero hedge a article about China I get these Chinese women want love advertisements - I beginning to think that there is a Chinese covert operation to love bomb zero hedgers with honey traps so that they can spread their Manchurian candidates amongst the ether of cyberspace.

faustian bargain's picture

...spread their Manchurian candidates...that sounds naughty.

THE DORK OF CORK's picture

Another thought has entered my little brain but I won't go there now since I know this is a family show

Leo Kolivakis's picture

Krugman is an excellent economist but on this issue, he is patently wrong. I  wrote about The Chinese Disconnect back in October and took issue with his position then. He still carries the same silly views on China. Oh well, after Peddling Prosperity and Pop Economics, he hasn't really produced anything interesting, and is starting to repeat himself ad nauseum.

tmosley's picture

Krugman is a lot of things, but an excellent economist isn't one of them.

Leo Kolivakis's picture

C'mon, he did get the Nobel Prize, even if it is in the fake, charlatan, pseudo science of economics. Après le Prix Nobel, le déluge!

THE DORK OF CORK's picture

 Leo he just said that 2005 was a normal economic environment - I know the only sane people in this crazy world are mad people but but I still think he should start taking his medication again.

Then again I agree with him for once - parhaps I need to increase my dosage

suteibu's picture

Yeah, and so did Obama.  The irony is, Krugman is advocating for Peace Prize winner Obama to start an open trade war with China.  That is sure to hurt Japan and S Korea.


Krugman is the same guy who said the reason the Keynesian solution didn't work in Japan in the 90s is because they didn't print more money. 

He recommends passing a law requiring the central bank to pursue at least 4 percent inflation rates for 15 years (Krugman 1998)“  http://mises.org/story/1099

Vol Addict's picture

Does anyone, including celeb economists, wonder whether pissing off the guy that loans you all the money is a good idea. BTW, for me, when Al Gore won a Nobel Prize it became the "Participation Ribbon" from Meet The Fockers.

zezorro's picture

He's not wrong. He's doing his job: propaganda. Not to mix with science, other department.

buzzsaw99's picture

Earth to Krugman: The trade war's over, the usa lost. Epic fail.

Racer's picture

Chinese manipulation... pot meet kettle


ROFLMAO, rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl

rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl

rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl

rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl


no, the pain from laughing.... oh this is soooo painful..

rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl

rofl, rofl, rofl, sorry big stitch in my side, can't stop....rofl, rofl, rofl......rofl....lol, lol,,,,,, lol lol, argh my sides hurt..... rofl, rofl, rofl





Master Bates's picture

You probably could have put that once or twice and had the same message.

Ten is just annoying, buddy.

AR15AU's picture

If China made cars (for export), you know there would be some government goon flooring the accelerator down I-5 for a photo op right now.

Grab your popcorn...  Should be a fun night on CNBC.

Big Red's picture

thanks, I needed that.

(Also, if not gov't goon, someone in a lot of debt, a union-related goon, a publicity-seeker, a dumb-ass driver (which also includes many who just can't do anything manual, anything), or some combo of the aforementioned...)

bc0203's picture

Can't WAIT to see this one play out, if Geithner is actually stupid enough to act upon it.

Howard_Beale's picture

Timmay is a eunoch. Nothing will happen.

deadhead's picture

Howard...while "eunoch" is clearly an accurate description, I would respectfully request that you join me in using "phucknut" as the universally accepted descriptor of the current U.S. Treasury Secretary.


In the event that your favorite bank's guy ever gets the Treasury job, I will have to come up with a new and improved version of "phucknut"....I am confident that I could be successful.




Howard_Beale's picture

Yes, phucknut from now on! I've used it several times today, although hyphenated. Thanks for the clarification and as Miles called it, a new ZH lexicon!

RSDallas's picture

We have known forever the potential consequences of our economic decisions.  It seems we are now learning and living what it means by "to much government involvement".  China didn't become the WORLDS manufacturing facility overnight or on their own.  There is nothing new here.  Economist like Krugman have always been wong about the economic decisions we, as a Nation have pursued.  Now that the chickens have come home to roost, (and they are not interested in going back home this time) Krugman and others cry "FOUL PLAY".  It's always "somebody else's" fault within the Socialist American Economic society that Krugman and others live in and in the US Government. 

Did China get the US in this mess or the decisions from our government on our trade policies?  Is China playing the game by all of the rules?  Probably not.  Does anybody play by all of the rules?  No, No, No.  Folks, every Nation has its own agenda. 

It's funny that you never heard a peep from these fools during the time we were outsourcing everything we stand for out of this country and rolling in the money.   I'm just thankful that this financial meltdown has awoken at least some of our society.  Let's just hope enough people wake up to actually make a change in this great Nation. 

Well Kramer just went negative on the residential real estate bail out and preached that it would be better for some to just go broke.  Maybe he just woke up.  Maybe there is hope.

Howard_Beale's picture

"Economist like Krugman have always been wong"...

A little Keynesian slip there in your typo?

RSDallas's picture

Ha Ha.  I thought I saw a puddy cat.

svendthrift's picture

I support the movement to bring the cost of Chinese goods (and others) in line with American costs. I support an industrial plan.

Have any of you been in America lately? Here, I speak of non-financial centers like Ohio, Penn etc. Or any city in the South. Economic carnage. Under/unemployed peasants limping around Walmart, sucking on meth pipes and generally accomplishing sweet frak all with their lives. There is no opportunity. There is no path of social advancement. There is a vast underclass with no hope for the future. What we're doing simply isn't working. We can not have a society of burger flippers and "account representatives" at Citi. It isn't working.

America needs to reindustrialize. Part of this is slitting Keynes's throat once and for all. Another is recognizing that the theory of comparative advantage is not relevant given present monetary and trade arrangements.



Catullus's picture

Goddamnit.  It's even bad Keynesianism.  The guy is a just a mercantilist loser. 

Hey Dr. Krugman, somewhere Richard Nixon just got a hard-on for your article.  That's right, Richard Nixon.  Read it.  Love it.  You're nothing more than a Nixonian Republican. 

Howard_Beale's picture

From Jeff Dunham's puppet Achmed the Dead Terrorist to Krugman's ear:


I Kill You!


carbonmutant's picture

"We have just received a copy of a letter signed by 130 Congressmen, and sent to Tim Geithner and Gary Locke, urging the Treasury to immediately address the "growing problems associated with China's continued currency manipulation"

I'm not sure the Chinese take Mr. Geithner seriously.


MarketTruth's picture

Geithner literally was laughed at by Chinese students. In China, your education ranking is VERY important (not just in level of education but WHERE you graduated within your class), as employers seek the best and brightest. They care more about your knowledge and personal reputation versus net worth or that made-to-measure suit you may be wearing.

And remember, China literally kills banksters while in the USA they roam free without fear of jail time or any repercussions for their massive fraud. Have personally spent time in China....


Postal's picture

Are you suggesting that we place something of higher priority than American Idol?

GlassHammer's picture

Krugman is a tard 90% of the time but every now and then he makes sense.

This is not that 10% though.