When times were good, the trade/currency situation with China was a cause that was railed about only by academics and obscure politicians. Whenever the issue was brought up, it was politically expedient to sweep it under the carpet rather than bring it up with the Chinese and explain what the potential problem would be i.e. a huge sucking noise sending dollars to China. The explanation at the time was that we didn't want to "anger the Chinese" about trade and currency policy, as if the entire nation was a petulant 8 year old who didn't want to give up his cheap, plastic, extremely-low-cost-of-labor toy. The end result was predictable; the US ended up with overly cheap money and China ended up with way too many dollars. Both results are now each respective nation's biggest financial problems.
Well - times may be changing. Today, the latest annual trade report was released and the US Trade Representative's office released numerous examples of unfair trade practices from both China and the EU. Given the current export environment, it's feasible that this administration may actually do something about it this time. The subsidy to Chinese/European exporters over the past number of years is economically not justifiable, especially given the current top economic priority of job creation and massive resulting debt creation to fund that.
Additionally, the Treasury is set to release its semi-annual report on foreign exchange trade practices in a couple of weeks. The Democrats complained bitterly during Bush Jr.'s terms about this specific issue and are probably expecting some big moves by Obama, symbolic or otherwise. Since Obama was a vocal critic of Chinese currency manipulation during his campaign, there is going to be some clear accountability on this one.
If changes do happen in this area, this will cause massive dislocations in almost every major market. Some may call it a principled administration finally being in power, others will label it a desperate country with its back against the wall. Either way, it's long overdue.
Sphere: Related Content
Print this post