Home » Opinion » Foreign Views
Averting a trade war with US' best partner
By Shawn A. Mesaros |
October 18, 2011, Tuesday
|
Print Edition
Print Edition
AMERICANS must know that it's an election year.
Rhetoric regarding jobs is now in full swing and in order to combat the rising tide of angst regarding the jobless issues plaguing the United States.
In an recent article titled "Pass the China Currency Bill," Peter Morici says: "The China Currency Bill is the most significant jobs bill Congress could pass... The nearly US$600 billion trade deficit is destroying more American jobs than the mortgage crisis..."
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the US International Trade Commission.
The US made the bed that it sleeps in today, and China did not create the policies of Fannie Mae or Freddie Mac, AIG, Lehman, Bear Stearns - the list is too long for print media.
Income taxes, estate taxes, and taxes in many other forms dropped in the United States over the last 30 years. Yet largely due to "Chinese Mercantilism" trade dramatically accelerated with Asia over the same time frame.
Many US states even raised sales tax revenues in order to take advantage of all of the trade that was happening with China. Like most forms of government revenue, it was something politicians became overly reliant upon.
The current problems (in the US) don't stem from lack of available jobs, but due to a country which ran on politically supported (and protected) leverage and credit, in which case the jobs lost were in areas of the economy which were in fact far out of proportion with long term economic reality.
Mortgage bankers, stock brokers, retail bankers, real estate professionals, mortgage servicing, credit enhancement. Anything with leverage will not be coming back and yet this is not China's fault.
Peter Morici suggests that "all we have to do is not buy US$600 billion annually from China and it will be made right here at home in the USA" - and nothing could be further from the truth. If Mr Morici wants to take a page from his own lesson books, he understands that when leverage runs an economy into the ground, those associated with it will be out of a job.
When "finance" becomes 35 percent of the S&P 500 profit estimates, the economy is one big leveraged bank.
When the dot-com era was in full swing, over 35 percent of the S&P 500 was attributed to the value of technology companies.
It's surreal that now the same country that has relied upon China as a great business partner, a partner who owns TRILLIONS of dollars in paper - the same country, deeply reliant on external funding, should now create a trade war with its No. 1 financial partner.
Americans will remain out of work until the economy rotates and trades off the excesses of yesterday for the promise of tomorrow. A trade war and the political assassination of China will at that point be complete. The unemployment will rise and not fall.
When a large bubble hits the economy, and a sector of the economy grows out of control, the problem is a political problem completely home grown, right in the heart of Washington DC.
Blaming credit cards
This was not a Chinese problem.
Peter Morici correctly points out that the RMB or yuan is likely somewhat undervalued vis-a-vis other countries.
Mr Morici should also note that the United States of America under President Nixon also decided that the US dollar was too strong in the early 1970s and summarily concluded that "the gold standard was now dead" - and in that case Nixon devalued the US dollar in order to gain some competitive position in the world.
Peter Morici blaming China for the ills of the West and perhaps the ills of Europe is tantamount to declaring bankruptcy and blaming the credit card company. The cause and effect are completely out of alignment.
Peter Morici: "Beijing undervalues the yuan by 40 percent - simply, it prints yuan and purchases about US$450 billion annually in currency markets to keep its currency and exports cheap."
Mr Morici is correct, China absolutely supports its trade partners.
What's abundantly clear is that China's currency will appreciate over the long term because in many respects Beijing is healthier than the United States and Europe. China doesn't enjoy the political or military prowess of either, however, and it has come from being substantially leveraged to now effectively being in a net cash position with all of the benefits financial austerity can bring when managing one's finances correctly for so long.
Can we expect the Chinese to move toward suicidal monetary policy and sovereign leverage the likes of the US and Europe so that it might "finally" feel the same financial pain as the rest of the world?
We would rather opine that forcing a major revision on the RMB "right after" China acquired US$1 trillion of Treasury Bonds is nothing more than forcing your greatest financial contributor to play Russian roulette.
Of course Mr Morici would like to see the fantasy of China revaluing the RMB vis-a-vis the US dollar by 40 percent. The US$1 trillion in freshly purchased debt immediately becomes worth US$600 billion in US dollar terms.
Yes. Politics are alive and well in the United States. As long as China is willing to take an immediate US$400 billion write-down (in currency terms) on its recently acquired Treasury bonds, Mr Morici will be happy.
The author is managing director of Pacific Asset Management. Shanghai Daily condensed his article.
Rhetoric regarding jobs is now in full swing and in order to combat the rising tide of angst regarding the jobless issues plaguing the United States.
In an recent article titled "Pass the China Currency Bill," Peter Morici says: "The China Currency Bill is the most significant jobs bill Congress could pass... The nearly US$600 billion trade deficit is destroying more American jobs than the mortgage crisis..."
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the US International Trade Commission.
The US made the bed that it sleeps in today, and China did not create the policies of Fannie Mae or Freddie Mac, AIG, Lehman, Bear Stearns - the list is too long for print media.
Income taxes, estate taxes, and taxes in many other forms dropped in the United States over the last 30 years. Yet largely due to "Chinese Mercantilism" trade dramatically accelerated with Asia over the same time frame.
Many US states even raised sales tax revenues in order to take advantage of all of the trade that was happening with China. Like most forms of government revenue, it was something politicians became overly reliant upon.
The current problems (in the US) don't stem from lack of available jobs, but due to a country which ran on politically supported (and protected) leverage and credit, in which case the jobs lost were in areas of the economy which were in fact far out of proportion with long term economic reality.
Mortgage bankers, stock brokers, retail bankers, real estate professionals, mortgage servicing, credit enhancement. Anything with leverage will not be coming back and yet this is not China's fault.
Peter Morici suggests that "all we have to do is not buy US$600 billion annually from China and it will be made right here at home in the USA" - and nothing could be further from the truth. If Mr Morici wants to take a page from his own lesson books, he understands that when leverage runs an economy into the ground, those associated with it will be out of a job.
When "finance" becomes 35 percent of the S&P 500 profit estimates, the economy is one big leveraged bank.
When the dot-com era was in full swing, over 35 percent of the S&P 500 was attributed to the value of technology companies.
It's surreal that now the same country that has relied upon China as a great business partner, a partner who owns TRILLIONS of dollars in paper - the same country, deeply reliant on external funding, should now create a trade war with its No. 1 financial partner.
Americans will remain out of work until the economy rotates and trades off the excesses of yesterday for the promise of tomorrow. A trade war and the political assassination of China will at that point be complete. The unemployment will rise and not fall.
When a large bubble hits the economy, and a sector of the economy grows out of control, the problem is a political problem completely home grown, right in the heart of Washington DC.
Blaming credit cards
This was not a Chinese problem.
Peter Morici correctly points out that the RMB or yuan is likely somewhat undervalued vis-a-vis other countries.
Mr Morici should also note that the United States of America under President Nixon also decided that the US dollar was too strong in the early 1970s and summarily concluded that "the gold standard was now dead" - and in that case Nixon devalued the US dollar in order to gain some competitive position in the world.
Peter Morici blaming China for the ills of the West and perhaps the ills of Europe is tantamount to declaring bankruptcy and blaming the credit card company. The cause and effect are completely out of alignment.
Peter Morici: "Beijing undervalues the yuan by 40 percent - simply, it prints yuan and purchases about US$450 billion annually in currency markets to keep its currency and exports cheap."
Mr Morici is correct, China absolutely supports its trade partners.
What's abundantly clear is that China's currency will appreciate over the long term because in many respects Beijing is healthier than the United States and Europe. China doesn't enjoy the political or military prowess of either, however, and it has come from being substantially leveraged to now effectively being in a net cash position with all of the benefits financial austerity can bring when managing one's finances correctly for so long.
Can we expect the Chinese to move toward suicidal monetary policy and sovereign leverage the likes of the US and Europe so that it might "finally" feel the same financial pain as the rest of the world?
We would rather opine that forcing a major revision on the RMB "right after" China acquired US$1 trillion of Treasury Bonds is nothing more than forcing your greatest financial contributor to play Russian roulette.
Of course Mr Morici would like to see the fantasy of China revaluing the RMB vis-a-vis the US dollar by 40 percent. The US$1 trillion in freshly purchased debt immediately becomes worth US$600 billion in US dollar terms.
Yes. Politics are alive and well in the United States. As long as China is willing to take an immediate US$400 billion write-down (in currency terms) on its recently acquired Treasury bonds, Mr Morici will be happy.
The author is managing director of Pacific Asset Management. Shanghai Daily condensed his article.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
