In 2010, over 350 members of the House agreed to a bill designed to punish China for their currency manipulation. In 2011, 68 members of the Senate agreed to a similar bill. But in a year-end report to Congress, the Treasury Department voiced their disagreement, refusing to label China a currency manipulator, instead opting for softer language around their failing to “reform” currency operations.
Some U.S. politicians have argued that China has gained an unfair competitive edge in global markets by keeping the yuan artificially low to boost exports, and pressure has mounted in Congress for President Barack Obama to punish China.
But the administration prefers to tread softly and use diplomacy to effect change. The U.S. Treasury, in a semi-annual report, as usual said that statutes covering a designation of currency manipulator “have not been met with respect to China.”
It repeated its standard line that appreciation in the yuan has been too slow, calling it “insufficient.”
“Treasury will closely monitor the pace of appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth,” it said in the report to Congress on international economic and exchange rate policies.
There are real consequences to this unsuccessful diplomatic effort. The economy loses millions of jobs by allowing an undervalued yuan relative to the dollar. Prices for our exports wind up higher than they should be. Chinese manufacturers gain a competitive advantage.
The frustrating part of this is that the Treasury clearly states in the report (available here that China’s currency appreciation has been “insufficient.” The report highlights an IMF study that showed the yuan to be undervalued by as much as 23%. It adds that the real effective exchange rate has not really budged since 2001, with China only making up the difference of its depreciation from 2001-2005 in the ensuing six years. But political factors have clouded following through on the implications of that. Labeling China a currency manipulator would bring sanctions on Chinese imports.
Scott Paul of the Alliance for American Manufacturing had this reaction:
China’s currency is still enormously undervalued—that fact is clear despite the Treasury report. I’m disappointed that President Obama has now formally refused to cite China six times for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs.
The ball is now is Speaker Boehner’s court, since the President has failed to show leadership in this area. The House of Representatives should pass currency legislation as soon as it returns in January.
The Senate’s majority was actually veto-proof, and if Speaker Boehner allowed the bill to come up on the floor, that would probably also be the case in the House. The public wants fair trade solutions, not perpetuating a trade imbalance because of diplomatic niceties. As for the claim that such a move would start a trade war, I seem to remember China slapping a duty on US auto imports. If there’s a war, the other side is firing all the shots.
I recognize that the Treasury believes that China will eventually have to rebalance their currency to increase household consumption and domestic demand-led growth. They spotlighted a number of quotes from Chinese leadership to that effect. This is a good statement of their views:
While rebalancing the Chinese economy away from production of exports to provision of domestically consumed goods and services may create challenges in the short run for manufacturers that rely excessively on external demand, it is important to recognize that the longer the currency remains undervalued, the greater will be the misallocation of resources that will eventually have to be corrected.
But this has been a familiar refrain, and while everyone waits, Chinese manufacturers grab an ever-increasing share of the market. Real jobs are at stake with this delay. And Treasury simply refuses to use the means at its disposal.




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It occurs to me that the China tariff on US car imports did not happen until we threatened their solar industry. Many have warned of this very response to instituting tariffs. It is known as a trade war. I think we could accomplish more by changing our tax codes to encourage domestic investments. The capital gains tax breaks need to have domestic investment conditions for eligibility.
Let’s see. Here at home, when you kowtow to the opposition, it’s called “bipartisanship”. Abroad, when you kowtow to the opposition . . . aw, heck, what is that term?
This what happens when the 1% controls (owns) the government.
We will now wait to see what we got from China in return. Perhaps they’ll buy some Greek debt. Perhaps they’ll buy some stock in weak US banks. Perhaps something related to North Korea.
Boxturtle (Or maybe ObamaLLP just bought another pig-in-a-poke)
“There are real consequences to this unsuccessful diplomatic effort. The economy loses millions of jobs by allowing an undervalued yuan relative to the dollar. Prices for our exports wind up higher than they should be. Chinese manufacturers gain a competitive advantage.”
The “Chinese manufactures” being, of course, IBM, Apple Computer, etc., etc.
A significant chunk of what passes for leadership in this country looks at China’s “managed democracy” with envy. They’re only trying to establish a similar system over here.
Would that “over 350 members of the House,” suddenly get a lot smaller? Much easier to strike populist poses when it doesn’t matter, and doesn’t effect your quarterly earnings statement.
from your quoted comment:
fat chance.
another example of why occupy is so important.
This is a very annoying topic. Appreciating the yuan will not make a major diff to the U.S.-China trade balance bc Chinese labor is still so cheap relative to U.S. labor. No amount of currency change will make up that diff.
The real prescription is for China to change economic policy to encourage domestic consumption.
This they will no do bc they need to create 25 million more jobs each year to avoid domestic unrest, and they know the export model works.
Perhaps as important is keeping themselves out of the maws of the IMF/WB by accumulating a bajillion dollars of reserves in case something goes wrong. One can hardly blame them for that considering how the Washington Consensus has ruined so many economies.
So the global imbalances will continue to worsen, owing at least in part to U.S. dominated IMF/WB.
Bernanke prints trillions of dollars, yet we accuse China of manipulation?
It’s not that China is right. But aren’t we manipulating our currency as well? And we did it while being financed by China in large part.
I really don’t understand this stuff well, but it strikes me as more kabuki.
It is total kabuki. I gave the reasons why it won’t do U.S. any good, and why China follows such a policy in 8.
The reason why congress mucks about with this bs is to scapegoat China for U.S. bad economy. It seems to work, too. Everyone seems to think that if China would only appreciate teh yuan, it would be a miracle drug.
From the article: “Some U.S. politicians have argued that China has gained an unfair competitive edge in global markets by keeping the yuan artificially low to boost exports…”
————-
I work for and with about 50 Chinese. I asked them if the CHibese governmente wouod do that. They said, “Does a Panda shit in the zoo?”
It’s not “currency manipulation” when WE do it.
You might be interested in why they do it (8 above).
“It is total kabuki.” I’m inclined to agree with you. BUt, OTOH, our owng China all that money makes ME feel less likely that they would start a war with us. Not that they have any reason to, don’t ya’ know.
You mean the Pandas??????
Oh, sorry, didn;t go to #8 as directed.
Quite the other way around. U.S. is looking to surround China with new bases. That was Hillary’s trip to Australia and Myanmar.
Last figure I remember seeing was that Chinese defense spending in 5% of U.S.
It’s hard to bitch slap the boss.
So, WE don’t have anything to worry about but THEY do?????
(Serious question)
The Masters of the Universe are no longer enamored of the bracing benefits of competition, and the healing tonic of creative destruction?
Boo hoo.
Perhaps it is time to try mutually beneficial economic relations.
I think, perhaps, you are giving the MOTU far too much credit.
I don’t think the Chinese are stupid enough to buy the crap they make and is sold at Walmart.
Wal•Mart has ordered president Obama to leave China alone. If the Treasury Department were allowed to tell the truth about China’s currency manipulation, then China would retaliate and every WalMart in America would be empty and the Pentagon wouldn’t have it’s shiny new weapons (since many components for US military hardware are now made in China, thanks to the Republicans).
They don’t have anything to worry about from the U.S. Was it Chou en Lai who said that if U.S. nuked China & killed 200 million people, they would still have a billion left?
U.S. can’t tolerate the nerve of the Chinese to dance biz circles around U.S. by taking advantage of U.S. being distracted by all its wars against Islam, going to Africa & Myanmar to steal their resources right out from under U.S. nose (aka business & trade deals). So Hillary’s trying to make up for lost time, trying to ‘nose’ out China.
I’m not an expert on this area, but a friend who is doing a startup in China sez the Chinese know exactly what the U.S. is up to and are way too smart and too entrenched to be dislodged. Have read that on another source too.
Like all these stupid foreign policy maneuvers that the U.S. tries, gotta watch it carefully, esp for law of unintended outcome.
“we could accomplish more by changing our tax codes to encourage domestic investments”
No, the Republicans only allowed tax breaks for moving manufacturing investment TO China. You’d have to have a far-left Liberal in the White House in order to reverse that. And having a real, actual Liberal President will never, ever happen. The closest we could ever get are the moderate Republicans like Clinton and Obama.
“So Hillary’s trying to make up for lost time, trying to ‘nose’ out China.”
——–
She’s gonna need a bigger nose.
There is more to it than that. I don’t know if anyone here has tried doing business here and in China. I have.
It is a state of mind, attitude. American manufacturers don’t want to deal with you unless you a huge opening order. Otherwise they don’t even want to speak to you. Has anyone tried to call an American company? There are no longer people manning phones. You just play email tag, leave messages, and might get a response if you are lucky. There is no longer customer service.
On the other hand, Chinese are willing to work with you, even on a small order. Granted, they have a concept called “target price” which basically means they will adjust quality to your price. And you have to keep your eye on them. If you don’t have your system in place, and people keeping an eye on your quality, you are screwed. But if you put an organization in place there, you have people you can trust, you will get a product at a very acceptable price. Manufacturing is not a simple process, it takes time to get things going. But here you don’t have room for error if you are a startup.
All these problems can be solved with high tariffs, but we all know this will not happen, at least not yet. The biggest beneficiaries of this system are the largest U.S corporations, and they own the government. The Apples, GMs, etc. who are making huge money in China. As soon as China raised import duties on cars, GM said it will move production to China. Why is manufacturing moving out of this country? Because, GM, for example, knows it can move its plants to Mexico without a penalty. At some point this is going to stop, when their customers run out of money to be able to afford their products. At that point U.S. and Mexican wages will probably reach an equilibrium.
I was just trying to hit the major macroeconomic reasons, not write a master’s thesis on the subject.
You add micro color.
There are many other ingredients too.
Your macro reasons mean nothing to an average person unless you can put meaning to this on a micro level, how it relates to an average person.
When you have an economy in which factory workers make 2300-2500 yuan a month (that is about $370) plus bed and board. They work 65 hrs/wk. The money they save they send to their home villages to support their parents. They hardly have time to spend the money themselves. It is not possible to beat these costs, unless you drive American wages to same. The only answer is tariffs, and that is not something our government is willing to do. Or for that matter help with anything that will tilt things the other way, as witnessed by this story. We will keep hemorrhaging jobs until we put duties on imported products. However, this is not going to happen since the governments have been captured by interests that make huge money off foreign trade. They will try to convince voters that low cost products are good for them. Obviously, people without jobs do not make good consumers.
China realizes that at some point things will reverse and they are already taking step to deal with that in the future. But Chinese are much more prudent people, and the government is more nationalistic. They will do what is good for China, unlike here. They study history, and they know that they need to be patient, but in the end they will win. They can reduce their standard of living, and in a world where those that can survive with very little win. They know we live for today, that is why we will always lose.
One more things about China, their leaders are very good, and very clever, at manipulating our greed. They use our greed against ourselves. They use our companies to lobby against our own interests. That is really brilliant.
well said. Thanks
I do not disagree. BUt, let’s acknowledge that there are some MAJOR advantages of having political leaders, like in China, that do not have to answer to an electorate.
WOW!! I Just realized what a “pot/kettle” moment that might be. ‘Course, we DO have elections……………Right?
Do our leaders answer to electorate once elected?
Do our elections make any difference? We do not a choice, only “appearance” or illusion of choice. However, this country is paralyzed politically. We are no longer able to do simple projects without spending huge amounts of money and time. Do you think we will ever get a high speed rail project off the ground? Well, I should have said “on the ground”.
But otherwise, there is no difference between the U.S. and China. In fact, China has fewer prisoners than this country. Although we always harp on the point of human rights. Soon you will no longer have any rights in this country, as our governments keep shredding the Constitution for the sake of fighting more wars.
Kudos to you for referencing the Washington Consensus, the destructive philosophy of Milton Friedman’s Chicago School of Disaster Capitalism. It was bad enough as an exported product, but the fact that it has been applied as a domestic economic policy escapes the notice of the masses.