Congress weighs China currency action (27.5% tariff if Yuan not un-pegged)

[UpInArms]

http://cbs.marketwatch.com/news/print_story.asp?print=1&guid={8C7249B4-6D73-4498-BD65-A60A6F52364F}&siteid=mktw

WASHINGTON (MarketWatch) - The Senate and House were set to separately consider legislation this week that would put limits on Chinese imports unless Beijing allows its currency to become more flexible.

Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., introduced an amendment Wednesday to a State Department appropriations bill that would slap a 27.5% tariff on Chinese imports if China doesn't revalue its currency within 180 days.

Lawmakers have expressed growing frustration over China's refusal to weaken the yuan's peg to the dollar. They contend that the tie has left the yuan significantly undervalued, putting U.S. manufacturers and workers at a disadvantage and contributing to the sharp rise in China's trade surplus with the United States.

"We think there is no more broad-based and serious violation of the spirit and rules of international trade than a purposefully undervalued currency," Schumer said in a statement. "When those conditions are violated, the system must respond or else the actions of one nation will upset the whole global balance."

...more...

[Tux]

1. Let's hear it for

Wal-Mart.

Let's fuck China, piss them off while we're borrowing money form them, raise prices at Wal-Mart, layoff more people, and fuck over the economy even more.

[VirginiaDem]

4. I'm not so sure this is a bad thing from an economic standpoint

even though I'm opposed to tariffs generally. We've got this nudge-nudge wink-wink thing going whereby we put up with the trade imbalance and they prop up the dollar but now that they've started shifting away from the dollar (and threatening/signaling a major move), we need to give them a great big hint that there are two sides to this unspoken agreement.

Everybody will be hurt by a US collapse so it is a risky move. If China were to partially unpeg, though, it would hurt the Chinese economy but it is growing at such an enormous rate that they could withstand the adjustment.

It's a game of chicken.

[EVDebs]

2. Crikey, even Reagan put quotas on cars, etc., when things got so bad

in his terms of office. Those quotas saved US auto jobs. Now I'm hearing that foreigners are using the price of oil, jacking it higher, in order to 'hedge' against the falling dollar.

Oil is paid for in dollars; driving the price of oil even higher hedges against the falling value of the dollar...a very vicious cycle indeed.

Sometime, when the pain gets so great, these free-market idolators suddenly will become Keynesians again, just like Nixon in the '70s.

[tubbacheez]

3. Either way, the days of cheap Chinese-made stuff are over.

If the tariff happens, Chinese goods will cost (at least) 27.5% more.


If China unpegs the yuan from the dollar, the price of Chinese goods will increase (at least) as much as the relative rise in the yuan.





Either way, it's a windfall for the U.S. government, though. One way, Washington gets the proceeds of the 27.5% tariff.

The other way, the massive U.S. debt held by China gets reduced by the relative rise in the yuan against the dollar.

[UpInArms]

5. your terminology

the massive U.S. debt held by China gets reduced by the relative rise in the yuan against the dollar.

is very interesting -

how about the fall of the dollar against all currencies because it will crater under the un-pegging and all holders of dollars (including all of the citizens of this country) will pay an enormous price.

[tubbacheez]

8. Yes, your point is also valid.

"how about the fall of the dollar against all currencies because it will crater under the un-pegging and all holders of dollars (including all of the citizens of this country) will pay an enormous price."


Yes, that's a very real possibility too. And if the dollar moves lower against other currencies, the U.S. debt held by those countries faces similar devaluation.



My previous post doesn't discount what you say. I was just focusing on the yuan/dollar relationship in my short post.

[UpInArms]

17. that's what I had thought -

I was just looking at the larger picture (all currencies)

[VirginiaDem]

9. Isn't it also possible that the markets will respond to a yuan

correction as a positive (because ultimately necessary) step that will help the US trade imbalance? The deficit spending and trade imbalance are two of the main drivers of this issue, aren't they?

[UpInArms]

18. the twin deficits are a massive problem

and do fuel much of the entire world imbalance.

The dollar is still the underpinning of world currencies and when the yuan un-pegs, it will cause ripple effects worldwide.

If the Chinese cease to peg their yuan, the euro and other currencies will sigh in relief because they are taking a bruising in all of this - but the underlying fall in value will possibly precipitate a global crisis.

[Massacure]

10. It's not as massive as you think.

Only $900 billion dollars of debt are in that region of the world, and Japan owns the biggest chunk of it. $400 billion dollars would be painful, but not dehabilitating.

[tubbacheez]

20. Ok, call it big but not massive.

Call it painful instead of dehabilitating (which I never did).



My post was about the cheapness of today's Chinese-manufactured goods, not the entire U.S. economy.

[aneerkoinos]

6. The problem is elsewhere

EU trade surpluss with US has been growing, despite euro and other EU currencies strengthening considerably against dollar.

EU has also surpassed US and Japan becoming the number one trade partner with China, despite strong euro.

I'd say best place to look for the real problem is to take a good deep look at the mirror, instead of trying to put the blame for sucking so badly on somebody else.

[Up2Late]

7. U.S. Yuan Policy a "Wet Noodle," Senator Tells Snow (Reuters)

U.S. Yuan Policy a 'Wet Noodle,' Senator Tells Snow

Thu Apr 7, 2005 02:28 PM ET

WASHINGTON (Reuters) - The Bush administration's bid to push China toward a more flexible currency policy has had the force of "a wet noodle" and done nothing to save U.S. jobs lost to swelling Chinese imports, a senator charged on Thursday. In a heated exchange, Democratic Sen. Charles Schumer dueled with a visibly agitated Treasury Secretary John Snow at the end of a Senate Banking Committee hearing on an unrelated issue, trying to pin Snow down on when and whether China would drop its currency peg. Schumer, who has sought to pass legislation to impose tariffs on Chinese imports unless it drops its policy of pegging the yuan at 8.28 to the dollar, was joined by Republican Sen. Richard Shelby of Alabama in criticizing the administration's efforts to get China to act.

Snow's insistence that China continues to "reaffirm its intent" to adopt a more flexible currency, which would let the yuan's value rise, and that "financial diplomacy" was the best course to follow only angered senators. "It isn't fair, it isn't right to the American people and to the trading system of the world, which is now going through all sorts of gyrations," New York Democrat Schumer said at a hearing on government-sponsored housing enterprises. "This administration, on this issue, has had the strength of a wet noodle. You don't get anything done, and here it is, plain as the nose on your face, we're not even admitting the problem," he said.

Treasury is to issue a legally required report soon on whether key trading partners manipulate their currencies for trade advantage, as U.S. manufacturers have long maintained China does by pegging its currency since the mid-1990s. Schumer tried to get Snow to say whether China will be labeled a manipulator. "We will be issuing shortly the currency report," Snow said, "I know it's of great interest to the chairman and to you and to others but until we've concluded our analysis I think it's inappropriate for me to be commenting on what we'll be saying in only two weeks' time."

A year ago, China was given a clean bill of health and Snow said "I stand by what our report said, I think it was appropriately characterized. ... We'll wait now to see whether the same attains or whether we may have a different judgment." Under questioning, Snow said the U.S. trade gap with China already was "far larger than we'd like to see it" and was likely headed upward. The deficit with China last year was a record $162 billion, accounting for more than a quarter of the total $617.7 billion overall U.S. shortfall on trade.

(more at link above)

[spotbird]

11. Can someone explain to me why China shouldn't benefit

from the weak dollar policy? The US government made a choice to devalue the dollar, no we complain because someone is playing by our rules and winning?

How is that even remotely justifiable?

[ozone_man]

13. I don't think it is meant to be fair.

We're just the 500lb gorilla. They should sell our bonds before they float the Yuan.

[David__77]

12. Imperialist logic of Schumer.

China and other developing countries should have the right to defend their national sovereignty. US punitive tariffs in retaliation for China's currency controls are nothing other than thuggery. The US corporations and consumers are gaining currently from US-China trade. The political elite is just pissed that China is gaining as well.

[Emillereid]

14. I don't think it's a wise idea to upset one's banker!

[cprise]

15. My Reaction

"We think there is no more broad-based and serious violation of the spirit and rules of international trade than a purposefully undervalued currency,"

You think wrong. There is no worse economic transgression than forcing other countries to pump dollars out of their oil wells for us. THAT is the essence of the US economic engine today.

China has recognized this imperialistic energy/dollar relationship and has decided to hitch its own economic wagon to it, at the same time dampening the benefits to the US.

I could be wrong, but I don't think the Chinese are ready to change their game just yet. Let the Republicans risk making virtually every durable good too expensive to afford, and see if their corporate masters at Disney, GE and Viacom can save them again at the polls.

[Ediacara]

16. So.... they want the dollar to drop more?

[Rex]

19. Smoke & mirrors

The real reason is BUSH, offshore tax shelters, outsourcing our workforce, unbelievable white collar crime going unchecked, Iraq, 911 oh yeah and did I mention GEORGE FUCKING BUSH?