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WHAT’S GOING ON IN CHINA LATELY?

August 16, 2015

WHAT’S GOING ON IN CHINA LATELY?

The answer is that I can’t be certain; neither can our policymakers. Economic and other policymakers in China do not broadcast their deliberations; we only see their policy determinations. For instance, just within the past few weeks China has devaluated its currency, the yuan, for two consecutive days, as reported in The Guardian (U.K.), for a total of almost four percent! It amounts to the biggest two-day drop since 1994, when communist China was just starting its foreign exchange system, and it has my protectionist blood boiling again. Let’s discuss why I am thinking tariffs and other offsets to China’s currency manipulation (in addition to their dumping, subsidizing of exports etc.).

China as a socialist country is top-down in its economic planning from within but operating without under so-called “free trade” agreements and protocols under the aegis of the WTO and amendatory and side agreements, all of which are capitalist concoctions written and underwritten by Wall Street banks and their multinational corporate handmaidens in search of profit. The Chinese regularly violate the terms of such agreements if conforming to them is not in their economic and/or policy interests.

Devaluing the yuan, of course, means that China’s exports will have an unfair pricing edge and thus put the pressure on costs of competing American exports (already under pressure because of the dollar’s high value). Result? China exports more; we export less. Further results? Layoffs in our export industries and more and cheaper goods from China to adorn the aisles of such as Wal-Mart, Target et al., just in time for the Christmas rush. It is these kinds of situations that make my protectionist blood boil though I am told that the word “protectionism” is a four-letter word. Lincoln didn’t think so, and neither do I. I think “devaluation of currency” as proscribed by trade agreement or treaty or even if not are dirty words, and I think their real world effects should not go unaddressed at the cost of unemployment of Americans, net export of capital, reduction in domestic aggregate demand etc.

It would be very nice if we had free and fair competition in the international marketplace and everybody followed the rules they agreed to as signatories to trade agreements and treaties, but such a situation is clearly economic theory and not economic practice in the real world of trade, however many trade agreements and side understandings we may have and whatever language they may contain. That is the world I am writing about. Following complaint after complaint over the years that China was undervaluing the yuan to gain competitive advantage and after promise after promise by the Chinese that they would allow the market to play a bigger role in deciding their currency’s value, here we are with two devaluations over two consecutive days! These devaluations were accompanied by the usual promises of Chinese authorities that they would be allowing the market to set their yuan’s value in the future. Where have we heard that song before? Based on their previous unmet promises, anyone who believes this one – well, I have this bridge. . . .

So what are we going to do about these travesties? Just sit here and watch our jobs evaporate because a major trading partner plays games with its currency values in order to gain competitive export advantage in contravention of agreements made in trade pacts, or even if not? “Free trade” and “fair competition” as embodied in such agreements (or even if there are no such agreements) do not in fact exist beyond theory, but those are the measuring sticks we use in trade agreements whether theoretical or not and I say we have a right under their terms (or even if not under their terms) to unilaterally impose tariffs or other constraints on Chinese imports to even the playing field that take into account their unilateral imposition of devaluation of their currency upon all their trading partners.

How can the word “protectionism” be “dirty” when it is employed to right a wrong? It seems to me that, on the contrary, NOT protecting our labor and export market from wrong-doing by others is itself wrong-doing. We are China’s biggest export market, and thus we have clout. Why should we sit here and watch our economy (already in long-term malaise and badly underperforming due to wage inequality and Wall Street shenanigans) go further south and play willing victim in some sort of “Stockholm Syndrome” trade play against a background of collective masochism? It is my opinion that if the Chinese can unilaterally change the playing field in export trade that we can unilaterally slap tariffs on their goods and services in proportion to the advantage they have would otherwise have gained with their currency games. Enough is enough!

As to China’s stock market, I again cannot be certain about its gyrations and the secretive policy that has the government spending billions to shore up it up. That policy (other than Bush’s bailouts of the big Wall Street banks, their shareholders and insurers not so long ago)  would provoke outrage in this country because the rich and corporate class here is already wallowing in corporate welfare, cheap taxes etc. We know that Chinese economic growth and their export market are slowing as labor costs there are increasing (prompting some Chinese factory owners to bring robots in to save on labor costs). (!)

It appears (and I am guessing, not being privy to the deliberations of the commissars) that the leadership in such a devoutly socialist country does not fully understand that in market economies there is a to and fro in economic growth and performance and that the stock market reflects a measure of its day to day growth and performance – and anticipated growth and performance as well. Intervening with public monies to maintain the pretense of prosperity does little or nothing to change economic realities, as they will find. Of course, in a socialist top-down rule of the economy, I suppose the powers that be could simply increase taxes so that their working people could pay more to make sure that stockholders’ values are maintained (much as is done in this “free market” country through tax code redefinitions of income and other such ruses to keep the corporate welfare trough running at high speed where we also have socialism at work – for the rich and corporate class – and brutal capitalism for the rest of us).

So what is going on in China these days? I’m not sure, but I am sure of one thing. They have devalued their currency and have thus inserted themselves into the affairs of this country with such a decision which beats up on our already-battered economy, and I think it is time to respond in kind. I think we have a duty to protect our own interests against wrong-doing by others, and if that is protectionism, I will join Lincoln and others in being for protectionist measures for so long as we need them to fight off those who seek competitive advantage against us by governmental edict in trade or any other such relationship between our country and theirs.

I do not expect any help from Wall Street and its rich and corporate class in righting this wrong, since their interests are frequently aligned with that of the Chinese in the name of profit though opposed to the best interests of this country. I, for one, place America’s interests over profit to the few.  GERALD   E

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