zach (zra) wrote in lp_youth,
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Anybody in here read QandO.net?

I really enjoyed this article quite a bit...



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Are politicians liars, or are they just idiots? Or Both?
Posted by: Dale Franks on Wednesday, June 08, 2005

Judging from the quality of argument presented in the New York Times op/ed article by Senators Chuck Schumer (D-NY) and Lindsey Graham (R-SC), the Times is apparently opening up its op/ed page to contributions from the developmentally disabled. Both senators are apparently rigid with fright over the nefarious practices of the heathen Chinee.

Dismayed by China's failure to play fair on free trade, we have offered legislation to impose a tariff on Chinese exports to the United States if Beijing continues to keep the value of its currency, the yuan, artificially low compared with the dollar. While our efforts to pressure China to change have been called protectionist, nothing could be further from the truth. Pushing China to reform is the free trade position. Those who favor the status quo are the real protectionists; they are protecting China.


War is peace! Freedom is slavery! You know, it takes a certain amount of chutzpah to look you right in the eye, and explain with a straight face that free trade requires the imposition of tariffs on imported goods. Oh, sure, they don't want to impose tariffs. But those Chinese—an especially tricky people—aren't playing fair. Therefore, the only solution is to force you to pay higher prices for Chinese goods.

China seems to want to obtain the benefits of free trade but not bear any of its responsibilities. Remember, a major tenet of free trade is that currencies need to be free to float in value against other currencies. When that happens, the free market self-corrects in the face of trade imbalances.

For example, the currency of the country with a trade deficit falls in value, causing imports to shrink (because they become more expensive) and its exports to rise (because they become cheaper). Eventually, this reduces the trade deficit. But if a currency is artificially fixed, the cost of exports and imports is distorted.


Ah. I see. But, the thing is, the yuan already floats freely in the FOREX market. It isn't "artificially fixed". The Chinese government have some magic wand it can wave to prevent the value of the yuan from rising. Chinese thugs don't stroll through the trading floor, grabbing currency traders by the collar, and menacingly saying, "If you keep buying the yuan, I'm gonna have to go shao lin on your ass!"

So what is that they do to keep the yuan "artificially fixed" against the dollar? Simple. They invest in America. Rather than bringing their import profits home to China, the Chinese invest those profits here in the US, mainly in American treasury bonds, but also in stocks and other investments. That's their big crime.

Yes, it keeps the Yuan priced lower relative to the dollar. It also helps keep US interest rates lower. Because of high demand for US debt, propelled in no small part by Chinese buying, treasury bonds don't have to offer higher interest rates to attract buyers.

Since China artificially keeps the value of its currency low, American companies are placed at a competitive disadvantage with their Chinese counterparts. Furthermore, pegging a major trading country's currency to another country's, as China does with the dollar, throws the world's trading system out of balance.


Man, if we could only find some way to make the Chinese repatriate their export earnings. Like...oh, I dunno...STOP ISSUING TREASURY BONDS!

Somehow, Messrs. Shumer and Graham seem entirely unaware that what allows the Chinese to keep buying treasury bonds is that the US government keeps spending more money than it takes in. You want to force the Chinese to revalue the yuan, cut off the flow of debt. Even better, start running a budget surplus that will allow the treasury to retire the debt that's already been issued. The simple fact is that it is solely our reckless spending that allows the Chinese to keep their export earnings in the US, rather than exchanging those dollars for yuan in the FOREX market.

But, apparently, the senators have no interest in addressing that.

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