There’s no question about it: China manipulates its currency. The value of the yuan is largely determined not by market forces but by a “managed float.” Beijing sets a target range within which the yuan can be converted into U.S. dollars via markets in Hong Kong. Under most analyses of purchasing power parity, the yuan should probably be at a higher value relative to the dollar.
On the latter question—what should we do about this—the answer is: not start a trade war.
Yeah yeah Bob. Let’s look at the facts related to China trade policy:
- Despite the claim that this “trade” is good for America, we import $4 worth of goods from China for every $1 we export. China insures this through tampering with the exchange rate of the Yuan, effective slave and actual child labor, environmental arbitrage, protectionism and forced local production of “imported” products (illegal under any reasonable interpretation of “free trade” incidentally) and intellectual property theft. Every time we pass one of these “free trade” bills we get the same result – a larger trade deficit. The only thing “free” is that the other nations are free to rob us.
- Tariffs are the Constitutional method of raising revenue and addressing these imbalances. They’re also how the government funded itself through the first 100 years of this nation’s history. It’s time to bring it back as the primary means of government funding.
- Trade deficits are self-correcting unless the monetary authority “replaces” the capital otherwise drained with more credit. That is, what we have allowed to happen could not have “worked” for the time it did without outrageous and blatant monetary manipulation by The Federal Reserve. That same manipulation, however, is what has enabled the Federal Government to run the huge deficits it has over the last two decades!
Now that the consequences are on the table The Senate is facing pressure to do something about it. But cutting off the trade deficit (which we must do) will also cut off the credit money expansion that has so far been used as the sop to allow Congressional overspending.
See, without that expansion the capital drain of a trade deficit causes the relative value of currencies to shift and that naturally cuts off the process. It requires active and intentional interference to stop this from happening – an active and abusive interference that just happens to fit nicely with the Congressional desire to “give everyone a pony.”
But there are neither real ponies nor do the funds actually exist to pay for them. Filling capital holes with credit is idiotic: While Capital and Credit are fungible in the marketplace they are not identical as one is economic surplus from past production while the other is a promise to produce a surplus in the future.
Note the distinction and the problem that arises and which we now face: What happens if there is no actual economic surplus when “tomorrow” comes?
Stick a sock in it Corker: You, and your cronies in The Senate (and House) have serially abused this nation and her citizens for three decades with unsustainable trade and spending policies. It is not “protectionism” to insist that a 4:1 imbalance in trade stop, and to use the Constitutional means available to Congress to put a stop to it. What’s abusive and should be treated as outright sedition was running these trade policies in the first place – and on that count, The Senate is responsible for both ratification of treaties and trade policies, is it not?