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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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We got the naval blockade baby-remember the tactics of Imperial Great Briton?
And what do you pay the marines with? Shiploads of hyperinflated dollars?
PAY 'EM JUST LIKE THEY DID IN THE OLD DAYS...BOOTY BABY
China's reserve billions are just spreadsheet entries located in a BIS computer. The US can deny access to funds if China chose the nuclear option…
Doesn't matter, those spreadsheet entries in a BIS computer represent the credit of the US Govt. If the US defaulted on its payment obligations, the dollar (ie credit of the US Govt) would cease to be recognized internationally. The US would then have to pay all its imports (and god knows how large they are) with hard assets and not pieces of paper (or spreadsheet entries) representing its credit.
It would make a more interesting story if we also blamed it on Chinese hackers instead of just deleting the entry, then we could also be the victim.
Wow multi nationals teaming up with foreigners to extract wealth form the US, who would have thought? /sarcasm
The simple fact of the matter is America is in the process of being totally hollowed out, and that process is about complete. We all know what happens to a rotten/hollow tree in a storm. That's our future.
Shameful,
IMO, America was "in the process of being totally hollowed out" starting during the late 60's. Sometime during that period, the WSJ had an article, complete with graph, comparing the numbers of students registrating in law with those registering in engineering. There is nothing special about engineering except I viewed it as a proxy for registration in hard sciences. There was supporting data into at least early 70's in other places.
The students of that era are now in their maturity if not senior maturity. During my early life there was much public interest in personal physical skills at the local level because there was no TV for entertainment. People lived within their communicities (friends, entertainment, etc.) because transportation was more primitative. Physical skills and hard work were respected.
Television has been a great modifier. In many housholds it is a babysitter. And for adults, idiot shows like "Dancing with the Stars" seem to be an addiction for a large part of the population.
We are still the proud owners of a great land, from "sea to shinging sea". The population is twice what it was during my youth but the technology (mechnical production and medicine) for productivity has improved so much that we should be able to accomate what we have. Our forebears certainly were certainly able to get along with life in a local environment. The Europeans do it fairly well. The Nordics have been able to live within their means. As we turn inward (IMO we will have to as a nation.) we should be able to do it as well.
"FAMILY GUY"
"simple fact of the matter is America is in the process of being totally hollowed out..."
Accurate call oh Shameful one...
The 1930s depression (so as to keep straight which depression we are talking about) showed that when the public is unemployed enough, foreclosed on enough and broke (cashless) enough... they will stop buying corporate "consumer" goods and barter, fix, repair, grow and manufacture their own in a small scale artisan economy to survive.
So brilliant CEOs...
What is your business model now that you have crippled 70% of GDP (US sheeple consumption) with your greed and frauds?
Time to become a Mennonite!
I kind of think of it like the Indians that made a deal with the Buffalo Traders to exchange
whiskey and tobacco for the furs. Eventually the traders realized it was far more profitable just to slaughter the herd of buffalo and take the skins and tongues themselves. The Indians go to the fall harvest for meat in the winter to find maggot infested corpses. It's going to be a long, hungry cold winter and the supplies of booze and pipe smoke are gone too!
Of course... the only way to fight China is to cut red tape, shrink government, and actually create an environment that is more business friendly.
Most Americans are too stupid to realize this basic fact. So, bend over to receive your new masters.
...or actually use the power of government to make it harder for China to do anything against the US.
Uhm, no, there are other ways. Like, I don't know, a floating exchange rate. I thought that was what this article was about?
If it was relatively cheaper to produce goods in the US then then business would do that, since it would be cheaper (e.g. more business friendly). See, shrinking government isn't the only way to fight China.
Then again, I am probably just too stupid to realize your basic opinion.
By the way, if China is so business friendly then why don't these businesses move their headquarters and everything over there? China values property rights as much as they do, right?
Changing the exchange rate will do nothing. It could cost $10 for 1 Yuan and still the cost of doing business over there will be more favorable, once asset prices adjust to the new exchange. In other words, valuing a Yuan at $10 would just cause the average chinese peasant to work for even less money. There is nothing you can do about the fact that they will work harder for less than the morons over here. There is nothing you can do when China has no equivalent EPA or OSCEA or FDA or DOL or ACLU or JESSE JACKSON. They are in a superior position regardless of the arbitrary value of the currency on a given day.
There is much more to the equation than just exchange rates. Businesses consider (and act on) tax rates, legal burdens, regulatory burdens, wage burdens (read health- and pension-costs), etc...
The US is woefully uncompetitive in all of these, and only continues to worsen...
P.S. thanks for the thoughtful post again, Bruce. Good to see some rationality now and again.
Your comment is amusing. You say that the Chinese peasants would work just as hard for less money; they would work harder for less money than the moronic Americans who want a living wage. You may be right, but I have a different opinion of who the moron is in that scenario.
If the exchange rate has no consequence then why do the Chinese resist letting it float?
AR15AU may have over-exaggeratedthe truth, but it is still the truth. The advantages of doing business in China go far beyond any currency differential.
Why do the Chinese resist? They are cheap, which is why they are also rich.
I understand what you mean, but I also think that the advantages to business are temporary. I think that once it is convenient for China they will implement their own alphabet soup of government organizations. I see what they are doing with rare earths and think that is possible for them to follow this path for other industries as well.
It sometimes seems that we are nearing the end of our exploitation of China, if that were the case then we should marginalize their advantages. I am a little crazy though, I think that western access to the Chinese consumer market is at least partially a mirage.
I'm tired of the cheap, rich guy sticking me with the bill.
Hmmm. Your posts speak of helping business, and note that Chinese will work harder for less. So you propose, I take it, that we corporatize the Government, and force American workers to work harder for less so that corporations can make more profits?
Just realize what you would get w/ a floating exchange rate... higher prices (at least until markets can adjust). I think we should fight back but you must be honest with the poor, who will be poorer.
Don't worry about the poor. If they get restless enough they'll just take your stuff.
Forgot to turn off <sarcasm>....
It's even getting better: Chinese producers are now buying up and starting up boxmoving companies in Europe to cut the middle man's profit.
And if you want to buy from most producers you're paying top dollar these days. They are selling now at only 20% below retail price.
4 years ago, profit margins used to be 250 to 300%!
And that's where their surplus is comming from. They are jacking up prices to cover shrinking demand.
If you want to compare their exports, look for the weight and volume!!
True. But there is still a massive arbitrage opportunity in electronics few innovators in the West have taken advantage of.
I suppose it is because American innovators are broke and what the article highlights about corporates focused still in China.
I have to do the mombo shuffle in fast-forward to stay ahead and not be spending vast sums of time overseas. Pick your poison but some do look at it as an adventure of sorts. I suppose that works great if one has no family, local school and friends and all that.
On the note of mombo shuffling what I find is about 1/2 my employees is that they can make more money working longer hours but instead complain about how they can't pay their bills and attempt to steal from the company. Even when you explain the economics and reality when smacking them in the face. The big corporations are having problems finding management they can trust and that get the results done in the time-frame expected. The 'star' C level execs receive a high level of mistrust these days, another opportunity to make a living if you have some nut to call the execs directly and do a nice little elevator pitch. They don't get these calls anymore from prospective execs, all of it is done online where the older gents don't use much tech to find underutilized value. Think of Buzz Fox in Wall-Street, at least the part about the process of getting in.
Blame it all on the Platform Company concept?
http://mises.org/daily/2629
Corporate America knows the game plan. Without access to Asia they have no growth prospects. Without access to cheap labor they have no profit margins. Without access to rare earths, they will be starved for materials.
Slowly, we are losing the economic war. And like Afghanistan, we are funding our own enemies...
traderjoe,
Rare earths are an exception. They may have cheap technical labor to process them but they have no monolopy.
From what I've read on rare earths, one key critical advantage is a willingness to degrade the environment. And therefore, one wonders if we would be willing to process them here, or if we would rather export the mess (and import the product).
China does have some resource issues...
traderjoe:
"Corporate America", at least to the extent as that applies to the standard "rust belt" manufacturing sector, is just as confused and concerned as the average citizen. They are scrambling for ideas to make a buck. For quite a few it is a trip to at least the edge of bankruptcy and back agan (if they can).A GM exec I know had a lifetime's accumulation in a mix of GM common and preferred paper. They had other savings as well but they sold their expensive house in Michigan and moved into a condo development. They say that they will get along OK but have suffered a substantial lifestyle revision. That means, I assume, that they will be able to keep their very nice Fla. place a few blocks off the Gulf.
I'm defining "Corporate America" as the elite exec's at the top of huge multi-national marketing companies like Nike. They have off-shored manufacturing, created life-style brands to sell consumerism to indebted US consumers, and now are moving on to try to do the same in the Far East. They will do what it takes to make their new political partners happy, especially to keep access to the growing consumer markets. [I picked Nike because most of their running shoes do more harm than good and are therefore a good example of rampant corporate kleptocracy.]
Most of the medium sized manufacturers, vendors, etc. typically are run by solid upstanding citizens that are pillars of their community. It's the very top that determines our country's industrial policy, and it's not working too well for us.
And of course, middle and upper-middle managers are getting run over, while guys like CEO's of HP get $60 million to break rules and are hired for $10+ million a couple of weeks later.
Unfortunately we are well down the road to losing this war and our ineffectual trade policies only exacerbate this outcome.
I wouldn't worry about the mountain of US dollars/bonds owned by the Chinese. It will be impossible for them to 'foreclose' and the sudden curtailment of their sales to us will hurt them much more than it will hurt us.
China shows a very tough shell, but it is really very thin. Then it all leaks out. They have tremendous problems just below the surface: no water, little arable land, real estate bubble, food shortages, restless populace. [Of course the downside is the government will probably go to war before they will give up control.]
Considering that Chinese males between 10 and 30 outnumber females 5:4 (due to one-child policy and female fetuses being aborted for many years), the next war will be fought over pussy.
And for years here, I have been suffering under the delusion that ALL wars were fought over pussy.
I mean like, there was something else?
Agree. And if I were Japanese, I'd be loading up on ammo, NVGs, and submarines.
Demographics are not on China's side.........the 1 child policy will come back to bite them in the ass........1 child to support 2 parents in old age........it's an inverted pyramid.
Premium pussy though........take the best and leave the rest, right.
Rally the troops! I'm in.
Thanks again.
Bruce,
Important theme that should not be dropped.
Either China revalues, the US devalues, defaults, or we have a trade war.
Pick your poison.
$18bn of $20bn of China's surplus was with the US. And what happens to those USDs? They need to be recycled into USTs ...
Enough is enough. China will never get to a point of consumption to offset these imbalances at the current rate and with the current CCP members and their chosen heirs.
Yeah, it will be nice when China's own ponzi blows up and their military confiscates all of our manufacturing as widespread civil unrest spreads. Then what do we do? Invade China and kill 1.3 billion of them? Great f*cking idea. Go to hell corporate America.
Possesion is 9/10 the law, right? Can't wait until China executes it's first "global" CEO. I'm hoping it's someone at HP.
I personally would vote for Microsoft, but that's just personal preference based on user data...
It's far more likely that there will be Chinese troops on our soil, rather than the other way around. In the one world governance end game, the elites/FED owners think they will be on top after ensuring disarmament every where in the world except China. Delusional isn't the right word here, but it's close.
You're fucking crazy. Our proxies are already at work on China... we secure oil instrastructure going into China... I'm confident we have numerous agents to help incite civil unrest... we have our global banking teeth sunk in china... china doesn't do shit here other than send us poorly made products for even more cheaply made paper. Plus, they had better play nice or we'll let the japanese loose.
The answer is that the whole thing implodes before either country's formal troops set foot on the other's soil. Are the chinese going to send their blue water navy over here to deposit troops? Maybe they can clean up the border while they're down there and cede some control from the drug gangs... they gonna sneak in from canada? march from alaska? maybe drop out of commercial airliners ala red dawn? We have a middle class large enough and educated enough with enough weaponry to sustain a guerilla war for decades... there will be no chinese troops on our soil. period, end of story.
There is no one world end game... that notion passed... they win either way, and plan A failed (copenhagen)... now the banking mechanisms implode and lay dormant for decades, maybe centuries, before being resurrected. In the meantime, we'll have plenty of isolationism and introspection. I expect plenty of border disputes/skirmishes amongst a great many countries as well as internal pressures amongst political geographies, such as the US and EU... but this won't end in WW4... and a single world eutopia will not ensue therefrom. Maybe next time... long after we're dead.
"We have a middle class large enough and educated enough with enough weaponry to sustain a guerrilla war for decades... "
Our middle class is full of pear-shaped, desk-ridden, soft-handed, easy-life lovin' men, their shop-a-holic wives that can't even cook and their kids that don't know how to wield a broom, let alone a gun.
In case you haven't noticed, the Chinese are already here in massive numbers and practicing the most sneaky and sinister of all attacks wherein you blow your own brains out just from having to drive behind them in traffic.
I guess I have a different view on the availability of ready, able, and willing participants by being in Arkansas... I suspect that if you go to the states that disproportionately fill the military ranks (generally southern), you'll find the same... we also have an incredible amount of middle class folks with very solid military training that have hung up the boots so to speak. So, I guess I should refine my statement to upper lower class and middle class (what's left of us).
We're fat and lazy because we have nothing to fight for... nothing interesting... nothing that demands us to be carved of stone. We're just bears that found a dump, much like corporate america. Do not think our present shape is permanent. I suspect that a great many of our obesity problems will be cured in very short order as the supply chain breaks down and we are forced to eat healthier foods and lead less sedentary lives.
"We're just bears that found a dump" = perfect analogy.
Around the DC area, the bears will be eating the "pears" if the SHTF.
Sorry, y'all, but the MachoMan is exactly correct in this instance.
"They" are not worried about such stuff as altruism and survival mechanisms within either our or the Chinese population. All this is a giant sham; a way of moving resources over there quickly and inexpensively, ingeniously with the explicit help of the indigenous popluation, I might add, just before...
you know. Shit happens.
-Thanks again, Bruce. Your topics sure elicit a lot of deeply held opinions that are generally way outside the cubicle.
:D
"China doesn't do shit here".
What do you consider "shit"? Would it be industrial or military espionage and theft? Would it be cyber attack to test system vulnerabilities? Would it be trying to recruit both Chinese Americans and Caucasian Americans to spy on behalf of China?
And in China itself, would it be breaking into the hotel rooms of visiting US businesspeople and copying hard drives (Windows source code stolen while Microsoft executives were being feted at a government gathering)? Would it be videotaping and recording all activity inside the visiting businessperson's hotel room, just in case the individual engages in an activity which could be used to blackmail the person?
China does plenty of "shit".