By Eric Lotke
As President Obama packs for China, I thought I'd draw him a picture of how China is manipulating its currency.
The dollar stays flat against the Chinese Yuan, even as it loses value against other major currencies. The dollar is down to $1.50 per Euro, compared to $1.27 at this time last year (sorry to folks daydreaming about summer in Italy). But the dollar is unchanged against the Yuan (unless one considers 6.836 to 6.827 a drop).
Everyone knows this is happening. Treasury Secretary Timothy Geithner even used the word "manipulating" with the Senate Finance Committee mere hours before it voted to recommend his confirmation.
The dollar exchange with China "defies the laws of monetary physics." During this U.S.-led global recession, dollars aren't worth as much as they once were. The natural physics of exchange makes U.S. goods relatively less expensive for others to buy, but makes foreign goods more expensive for Americans to buy. In a free market for currency, that would help bring accounts back into balance.
But China doesn't obey those laws. China's deliberate policy of pegging the Yuan to the dollar makes American imports of Chinese goods artificially cheap and gives American companies opening factories in China an artificial subsidy. That's good for China but bad for America, and helps explain our soaring trade imbalance with China. An extraordinary 83 percent of America's non-oil trade deficit is with China. During the downturn, our trade deficit with other countries has been shrinking — but not with China.
The dollar exchange with China "defies the laws of monetary physics." During this U.S.-led global recession, dollars aren't worth as much as they once were. The natural physics of exchange makes U.S. goods relatively less expensive for others to buy, but makes foreign goods more expensive for Americans to buy. In a free market for currency, that would help bring accounts back into balance.
But China doesn't obey those laws. China's deliberate policy of pegging the Yuan to the dollar makes American imports of Chinese goods artificially cheap and gives American companies opening factories in China an artificial subsidy. That's good for China but bad for America, and helps explain our soaring trade imbalance with China. An extraordinary 83 percent of America's non-oil trade deficit is with China. During the downturn, our trade deficit with other countries has been shrinking — but not with China.
The wheels of change are starting to turn. The Obama administration stood up to China when it imposed tariffs on Chinese tires and pipes dumped in the U.S. markets. The chattering class called it a trade war, but it's not. It's just applying the same rules of free trade that other countries respect, and that China agreed to when it entered the G-20 and was granted permanent normal trade relations with the US. Obama just blew the whistle.
The G-20 summit in Pittsburgh in September concluded with a joint statement to seek "more balanced growth as part of the global economic reconstruction." The entire G-20 signed on — including China — but China's name was in bold in the quest for "balance," and everyone knew it.
The G-20 summit in Pittsburgh in September concluded with a joint statement to seek "more balanced growth as part of the global economic reconstruction." The entire G-20 signed on — including China — but China's name was in bold in the quest for "balance," and everyone knew it.
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