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China Flexes Its Muscles
I got a laugh from this Bloomberg story.
The US-China Business Council whose membership includes the likes of
Caterpillar, IBM, Citicorp and Boeing (a total of 200 US multinationals)
is lobbying D.C. to fend off U.S. legislation aimed at forcing the
Chinese to raise the value of their currency.
Hello? China’s global trade surplus has narrowed somewhat of late. But
the most recent reading showed a $20 billion surplus. Guess what? 90% of
that surplus is a result of the trade surplus with the good old USA.
And our major corporations are spending big bucks lobbying Washington to
ease up the pressure on China to accelerate the revaluation of their
currency. Go Figure. From the article:
The
legislation, sponsored by Representatives Tim Ryan, an Ohio Democrat,
and Tim Murphy, a Pennsylvania Republican, would let companies petition
for higher duties on imports from China to compensate for the effect of a
weak currency.
The
measure “is totally counterproductive,” William Lane, government
relations director for Caterpillar, the largest maker of construction
and mining equipment, said in an interview. “Some in Congress want to
start a trade war and undermine our efforts to sell to our
fastest-growing export market.”
Here’s how I think this went down:
China to Citi:
If you want to expand your branches and business in our country you will lean on Congress not to pass this bill.
China to Boeing:
We can buy aircraft from Embraer in Brazil, or Airbus. If you want us to buy some from you, you must appose this law.
China to Caterpillar:
If
you want to open a manufacturing facility in our country you have to do
as we say. And we say you must tell your Congress to drop their effort.
The US-China Business Council to China:
We will do as you wish
The only reason that these global heavyweights are using their muscle to
pressure Congress is that China Inc. has used their muscle on the elite
of US corporations.
This development makes the Administration (in particular Treasury
Secretary Geithner) look pretty stupid. They have been pushing China on
the FX issue since they took over. Now, the big shots that line campaign
coffers are pushing in the opposite direction. Only in America could
this happen.
The year to date trade deficit with China is 145 billion. The article had this to say on that big number:
“In
2010, the trade deficit with China reduces U.S. GDP by more than $400
billion,” Peter Morici, an economist at the University of Maryland in
College Park, wrote this month in a report. “Unemployment would be
falling and the U.S. economy recovering more rapidly, but for the trade
imbalance with China and Beijing’s protectionist policies.”
I
am in the camp of Mr. Morici. China is not a partner. They are a
predator. The have wracked up a nearly $1 trillion reserve position with
the US because they are predators. They are moving whole factories to
their land. They recently announced a massive cutback in rare earth
metals exports (they are 97% of the market, they cut exports by 72%).
Unemployment is higher than it should be and the economy is weaker than
it might have been were it not for the continued imbalance of trade.
Watch for this proposed legislation to die. There are hearings on 9/15
and our boy Timmy G. is set to talk about this to Congress on the 16th.
As the election is near, expect to hear some rhetoric from Tim.
Looking like one is ‘tough on China’ is a vote getter. But beyond the talk there will be no action.
Just to confirm. The small guy in America does not stand a chance. The ‘big interests’ are not aligned with their interests.
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Bruce, you've got it all wrong. China doesn't need to pressure our companies. Our companies are against a stronger yuan for their own good. They outsourced their operations so they could reduce their cost of goods sold and sell back to us. If we force china to strengthen the currency it would essentially destroy their investments in those plants.
China is not the predator here. Citi, cat and all the other corporations that sold us down the river are the predators. Our gov is stupidly trying to go against them with this china bashing. The law won't stand because our predator companies won't allow their paid politicians to get away with that.
Would someone here please help me open a small arms factory in central Texas?
U.S. Business has become a football game with 30 referees on the field implementing nfl, college, high school, and pop warner rules at once. It'd be a miracle for a single play to conclude without a penalty flag or error.
Reduce government. Reduce petty red tape,laws, regulations, restrictions and mandates, and even better, permit immediate expensing of all cap ex for 24 months, and the result will be repatriation of exported production.
Corp money is sitting on the sidelines right now. It's not creating tax revenue just sitting there. So there's nothing foregone by permitting immediate expensing. The immediate loss of tax revenue will be recaptured by the absence of depreciation deduction in the future.
Politicians fail to realize that cheap Chinese labor is not the sole reason production has been exported.
Instead of debt-funded stimulus, give us a regulatory and tax holiday!
of course the chinese are going to act in their own self interest, why on earth would they do anything else?
pretty naive to think passing some law will solve america's problems...how ironic though, as that's usually the socialists approach:
' prices are rising? we will fix that, easy! make a law, no more price rises!'
the west had a decades long free pass due to china being communist, now they are slowly converting to capitalism and the west is going to have to compete, like it or not.
time to pay the piper, and all the ranting and whining in the world ain't going to change a thing.
i'm sure the chinese leadership are either astonished or else just laughing at the west's silly attempts to get china to act in america's interests, how ridiculous.
Let me see if I understand. Most of the multi-nationals manufacturer in China. If we raise tariffs or punish currency manipulation, that would mean they'd need to create a new manufacturing plant in the good ole republic of Vietnam. They'd have to pay more bribes and create more factories (capital investment) and of course they haven't fully depreciated assets in China. Wait....Obama will accelerate Capital depreciation. Therefore, Mr. Congressman, Mr. Senator, Mr President, it only makes sense to delay actions against the Evil Republic of China until we are ready to bring jobs home....What...Vietnam isn't part of the U.S.? War against terrorism part 1 (Vietnam)...the one that looks a lot like part 2 (Iraq) and part 3 (Afganistan).
I am truely saddened by the mistakes of my beautiful country.
China to Boeing and corporate America. Sell out your country and we will let you ....whatever.
Corporate America....where do we sign.
Useless ranting again - have you created any american jobs by buying american-manufactured goods lately? Where were your shoes and underwear manufactured? Or that nice phone you boght your wife and kids made (let me guess - you are a proud iphone or greenberry user right? good o american technology - designed in Taiwan and made in Dongguan - one of those frotress swetashops which pay $100 a month for 12 hours work 6.5 days a week because Mr Krasting demand a good cheap iphone)?
America is not sold out by its big corporations or its Chinese friends, hell no! It's the American people who voted in the corrupt politicians who then conducted the policies which led to the demise of the american economy and jobs Mr Krasting, stop ranting and start some introspection.
Was that a rant? Read like a rant. We are all ranting. You too. This article was supposed to be about how our legislative process was derailed by US companies who in turn were leaned on by China.
You say," the corrupt politicians who then conducted the policies which led to the demise of the american economy and jobs" are the ones at fault here. We are saying the same thing itsalie.
But you needed to rant and that is okay.
China has the US by the short hairs and they know it. They need China in order to keep the game going, if they decide to get out of the Western banking world then others would and it would be a disaster.
Read more: http://online.wsj.com/article/SB10001424052748703428604575418680197041878.html#ixzz0zS0TSBQ1
Is this the future for the US? sigh....
Well, if China is a predator what does that make the U.S. and the U.K. and Russia and India and Brazil.....
"If the white man wins, it is a great and moral victory. If the red man wins, it is an amoral slaughter"
All just in the point of view I'm saying.
What do I know, I'm just a regular guy. Seems to me China did nothing in terms of this 'predatory' relationship, that our elites wouldn't have done if the shoe was on the other foot. Isn't this a bit like blaming the loan shark for the financial troubles of the gambler who just doesn't want to quit?
As someone posted earlier, all the Chinese are doing is selling us the rope. Our 'leaders' (may they roast in h311) are the ones buying it and fastening it around the proletariat's necks. We debase the snot out of our currency and then whine when the Chinese won't accomodate such idiotic behavior? Who the heck would?
Let's keep the focus of our righteous rage where it should be: Washington, District of Criminals.
Yeah, DC is to blame. But the hyper-wealthy Ruling Class runs DC. You want the ultimate blame apportioned correctly, it's with them. Blankfein, Dimon, Bernake...I advise them to learn a foreign language before this gets ugly.
Oh it goes much deeper than that!!! Research the CIA!
Of course that's making the BIG assumption that China is separate from the Elites....
The Smoot-Hawley trait is expressing itself in the currency markets this time. Everyone wants their currency lower against everyone else's. That can't happen simultaneously.
The best they can hope for is to have the water slosh around, locally higher or lower in different parts of the bathtub, while the whole tub is draining; i.e., going to zero. Central banks will have to find a way to sit on the commodities markets if this happens.
One drain out of the tub and it goes straight to a one world currency...LOL! The rest is just games to occupy everyone whilst it happens!
"China is not a partner. They are a predator. The have wracked up a nearly $1 trillion reserve position with the US because they are predators. They are moving whole factories to their land."
Having been around Cat for 40yrs, I can assure you China did no arm twisting on those assholes.
Cat is all about the bottom line,and they do not have a US Market any longer.
So they must protect the teat that'skeeping them afloat.
In the 2000-2004 yrs, Cat, John Deere, had plants in South America less than a 100 miles apart.
Using labor there to asseble their shite, and RELABELING CAT ENGINES, as CAT, when the motors(engine blocks) where cast Made in HUNG CHOW!.
Only part on them CAT was fuel injectors!.
Buy a CAT!,uh, what part of your CAT is really CAT?.
Name only.
Same for all the rest.
This is where the PITIFIULL economic numbers are coming from.........over seas exports.
American jobs are service sector shit............
Most of the companies in the council are producing in China and selling to the US, or providing business-to-business services to those who do. They don't need any Chinese government carrot or stick to defend their own direct immediate interests.
The rest are selling to China, and are afraid they would take the collateral damage if the US tried standing up for fair trade. The quotes in the press release are from them because that looks better.
The simple way to solve this would be to take the existing "currency manipulator" system seriously and apply it objectively, instead of using it as a bargaining chip to buy Chinese acquiescence on useless Iran sanctions. Even better would be an automatically adjusting tariff based on the amount of central bank foreign exchange reserves accumulation versus totals imports.
And yes, if China didn't buy so much Treasuries, the US government would have to cut its deficit. Oh what a horrible thought!
Must be a slow news day to bring this up again.
Bruce, why doesn't the US just place tariffs on all Chinese goods? You effectively raise the price of their imports, nullifying any price advantage they have with domestically produced goods. Plus you get the benefit of income from all those taxes. If you really think China is a currency manipulator, and if they are labeled as such, there would be little to no pushback from the WTO.
Of course, this isn't going to happen, because this country (the USA), benefits just as much from this partnership as China does.
And besides, who the hell are you, or anyone else for that matter, to tell another country what to do? If they want to accept worthless pieces of paper for physical goods, let them. Their loss.
So go and force Congress to impose tariffs on all Chinese goods. I dare you to. Let's see what happens to the price of goods sold here in the US. We can watch inflation soar and our standard of living plummet as quickly as the value of the dollar once the Fed becomes the only buyer of our Treasurys.
Bernanke has no way out but devaluation. I don't like Chinese water torture method, drip drip drip.
LOL Too many past political campaigns funded by the Chinese for that to go anywhere. Started to get a little publicity on Billy Bob Blythe the third but then he unleashed Monica and in the resulting media frenzy everyone quickly forgot about China. PR at its best!
Like having a Russian as the head of the UN Security Council to approve of all war plans in Vietnam....or Lend/Lease....or Operation Keelhaul that removed all of Stalin's opposition in eastern Europe.....or having 100k soldiors & 400k private contractors all chasing 100 All CIAda around Afghanistan while heroin production goes from 75% of the world's market share to 95%......of course that helps put the kabosh on Khun Sa who told James "Bo" Gritz the names of all the government reps he'd been dealing with for the past 20 years....
Your wrong about those "worthless pieces of paper". You, your children and your grand children will all pay a price to pay those pieces of paper off.
"I" am not telling any country what to do. I just wrote about what China is telling us to do. See the diffference?
Dumb question. Isn't Ben Bernanke doing all manner of weird and historic things in order to stimulate inflation? They keep telling us that that is what the doctor ordered. I would like to see some labor demand and wage inflation. Choking down China would be a step in the right direction. No?
What makes you think China needed to 'tell' anyone what to do? Isn't the clue in the word 'multinational'? We've come a long way from "what's good for [US firm] is good for America".
I don't disagree that addressing the insane imbalances would help, but it takes two to tango. (Or in this instance, 200 US multinationals to tango...) Simply blaming China's machinations whilst failing to admit a mirrored complicity on the other side of the ledger doesn't get you very far.
(Actually, scratch that, maybe it will! If one could whip up enough ignorant nationalism such that Wal-Mart is picketed and boycotted, maybe that would have some rebalancing effect!...
I'm not suggesting this was any part of your aim. It's just that 'globalisation' is yet another canard sold by the few to the many for all's apparent benefit, whilst the few enjoy a double-lion's-share plus choice of dessert, and leave the many to bicker over details or (much more often) irrelevancies.)
Well that's really the heart of it - Will those children & grandchildren pay the bill or will they wave the international middle finger salute? Who's going to hold the gun to their head and make sure they pay up?
Generational war a comin! Who's going to win?
Nobody wins the generational war. Civilization decentralizes, rebuilds and prior debts at that point will be meaningless.
Yes, generational war. Burdens without opportunity - that is what we are bequeathing the next generation.
The only way you are bequeathing anything is if you are the one holding a gun to their heads.....they have their agency and can at any time tell the older generation to take a flying leap and cover their tab!
How's the rest home looking?
Cover their tab - ha. No rest for the weary yet here! Guess the tab wont get covered at all. Boomers too fat, lazy, and entitled to cover it. Next generations have no means to cover it. Watching it come due will be a doozy. May we live in interesting times, indeed!
Amen.....should see it all come to a boiling frenzy in the next 12 to 18 months!
You are expecting those worthless pieces of paper will be paid off with 2010 Dollars. If and when this relationship ends, and the US can no longer export inflation to China, you will see your desired wage inflation, along with price inflation that far outweighs any benefit you gain from higher wages. By that time, the value of the dollar will be substantially less than today, and the debt owed to China will not be as formidable as it appears today due to their diminishing holdings relative to the US GDP on a percentage basis.
These China-as-currency-manipulator articles never speak to the standard of living enjoyed by Americans vs. the Chinese. Americans get to buy goods at a deep discount based on the very act of China dumping massive amounts of RMBs in exchange for US Dollars. Depressing the price of the RMB hurts Chinese citizens by not allowing them to receive full value for their currency when exchanging them for goods and services on a global level. I ask you how fair is that equation?
Let the Yuan float? You better becareful of what you ask for. If it ever does happen, be prepared to pay $300 for a pair of sneakers at Kmart.
I'll make sneakers out of oak leaves and sell them for $59.88.
Whachu go'n do now?
When those New Balance type sneakers get to $40 at K-Mart there will be 20 new factories in the U.S. manufacturing them. Thanks for playing.
And each employee will be paid a living wage, right? Include benefits and employment taxes, and it starts to add up. Good luck with keeping them at $40.
OSHA-compliant factory = shoes $50
Health care for all union workers at factory = shoes $60
Automatic IRA for union workers at factory = shoes $70
Forget the unions.
Everyone builds factories in the South were there is no organized labor to worry about.
Yes that's pretty much it.
Chinese employees and savers subsidize exporters and the PBOC.
RMB revaluation achieves the reverse.
LOL Like arguing whether you're gonna eat turds today or tomorrow.....reality is you're gonna be eatin turds!
Deflation=Default=Exchange of Assets
Its all orchestrated! Who's going to win the war?
BK - if the picture is comparing Muhammad Ali to China, then its an insult to the great boxer and an American hero in my mind even though he supposedly flung his gold medal into the Cumberland !! At least he was homegrown and fought for this country.
Love Ali. Can you imagine going up against him in his day? To me his left-right is China and the multinationals. What little guy could stand up to that combo?
Interesting article. But Bruce is too nice with his motivations on both sides here:
China to Boeing - we are building up our own capabilities for aircraft manufacture. We will soon be the next Embraer or Airbus. If you want to sell aircraft to us to reap short-term profit for the next few years until we get there, you will toe the line.
China to Catarpillar - you will note how we imported car manufacturing from the world, and now control our own destiny and make all our own cars here. Do you think we cannot get there with heavy equipment? If you want to set up manufacturing here to reap some short-term profit before we control this sector, you better play ball.
China to Citi - you can note how our wild-west credit and banking system reaps incredible amounts of graft and profits from speculators, local governments, and peasants alike. It is of course the rampant speculators wet-dream. If you want a piece of the action while it lasts, you will do our bidding.
Notice the thread - these 'captains of industry' are the captains of the Titanic. Their orders are to speed up, so they can get while the getting is good before they snake the first lifeboats and say 'see ya suckers!'
ex VRWC
Exactly. They have no reason to have to continue to pong. War with them? Include Russia in that strategic war games analysis. American leadership hubris CDO squared. Bill Krasting, thank you for highlighting Peter Morici's constant public service work. I am close to being able to offer him and others some reward for such duty. And what fun we will have doing it ;)
"Their orders are to speed up, so they can get while the getting is good before they snake the first lifeboats and say 'see ya suckers!'"
Fiduciary duty. Legally bound to do it.
People wont' change until they feel the pain.
Pain equals change.
Oh the debates I have had on that in the past with people. Fiduciary duty to the next quarter's bottom line, or fiduciary duty to the next decade's bottom line? I understand the argument that says 'industry is only beholden to their stockholders'. Capital misallocation will not be cured by removing all curbs, though. Markets are incredibly short sighted. Really, localization, small community based micro-economies, etc are the long term cure. This is a future that will likely be forced upon us in any case, likely on the other side of a bunch of pain and suffering, unfortunately.
I was just being "nice". I like yours better.
Yes
Memo to: Citi, Boeing, Caterpillar, etc
From: China inc
Subject: you will be replaced by one of ours, see ya
503 Error +/or BigBrother jamming = double post.
WalMart and China and their many partners are a joint venture. Every small town retailer stuffed by WalMart knows they are a predator as does every town in America where a plant closed and reopened overseas. Predators eat prey. Let's stop acting like prey and take your business local, recognizing many industries are already gone, like textiles.
As long as we have a casino economy, we should expect the house to keep on winning.
The WHOPPER in WarGames had it right with respect to thermonuclear war: a strange game, the only way to win is to not play. How about a nice game of chess?
Game theory is with the WHOPPER and those who are buying and holding gold against the nasty accounting "surprise" to cure the dollar's woes.
As someone engaged in the China trade in one form or another for the past two decades, I must say that the US-China Business Council has been as asset to Americans interested in that line of business. They were among the first organizations to step foot in Beijing and for many years was publishing the only periodical dedicated to China. That the organization is well regarded by the Chinese is attested to by all the captains of US industry (see link below) wanting to sit on its board, if only to claim that relationship. There has always been room at their table for the little guy.
http://www.uschina.org/board_of_directors.html
http://www.uschina.org/info/programs/
So explain this one.
You do not see the cronic current a/c deficit with China as a systemic risk? You think it is just fine that we owe them a Trillion? You happy to go into the Wall-Mart and see A) there is nothing made in America and B) most of it is coming from mainland China?
With all your experience possibly you could help me out. Can you point me to where they make sheets and towels in America? How about Jeans or even underwear?
America can't dress itself and you are suggesting this is all working out fine. Possibly you could talk to all those mill workers who lost out to China. That might be hard to do, that was so long ago most of them are dead by now.