In his “enough’s-enough” speech at the summit of the Asia-Pacific Economic Cooperation in Hawaii, President Obama castigated the Chinese government for its currency peg, a perennial complaint. Congress too regularly hyperventilates about the yuan being “artificially undervalued” and threatens to call China a currency manipulator. If China just allowed its currency to trade freely, they say, it would solve the U.S. economic quagmire. But this angle of attack is cheap political posturing—and full of bitter ironies.
The U.S. does have legitimate gripes with China, such as intellectual property policies, market access, corruption, technology transfers, and industrial espionage. But the exchange rate isn’t one of them. And it hurts when the Chinese themselves get to rub it in.
It’s particularly painful when it comes from Xinhua, China’s largest news agency and official organ of the communist government, which also owns it. You’d like to shout down whatever it says, but heck, in this case, you can’t help but nod.
In the article, “Scapegoating Others No Answer To U.S. Economic Woes,” Liu Tian points out that Obama in his enough’s-enough speech “failed to mention the fact that the yuan has already appreciated by about 30 percent against the greenback in the past six years.” True. Given the economic nightmare of the last few years, the gigantic budget deficits, the political inability to even have a budget, much less a balanced budget, and a host of other issues—it’s outright brutal how the article puts salt on the wound:
In face of such serious domestic problems which probably could trigger a new global economic tsunami, many U.S. politicians seemed only to care about how many votes they could get, without having a single thought about what kind of global responsibilities the country should take.
Thus it should come as no surprise that the angry “Occupy Wall Street” protesters are calling for an end to the political tricks in Washington.
Squeezing China, especially on the yuan, is an old trick in the run-up to U.S. presidential election. Such a tactic of scapegoating others may attract some voters’ attention, but is definitely no answer to America’s real problems.
Mercifully, he doesn’t complain about the biggest currency manipulator of them all, the Fed and its stated policy of devaluing the dollar. My favorite example of its success is the San Francisco Bay Bridge. It cost $77 million to build in the 1930s. Today, replacing only half of that bridge costs $7.2 billion. Over the last decade alone, the dollar has lost another 30% of its value as measured by the Consumer Price Index.
The bitter irony of a rising yuan is that American consumers have to pay more for Chinese goods. The U.S. will import well over $400 billion from China in 2012, if trends hold. So, if the yuan rises by 20%, it would goose Chinese imports by $80 billion for the same quantity of goods. Does Obama really want to extract another $80 billion from American consumers and businesses and send it to China?
But a 20% rise in the yuan won’t motivate Walmart or Apple or most of the other companies that have offshored their production to onshore it again. It will take a lot more: American real wages will have to continue their horrific 12-year decline and Chinese wages their rise. When transportation and other costs of manufacturing in China make up the difference, companies might consider onshoring their production. But by then, the American economy will no longer have the needed know-how, skills, facilities, and infrastructure.
Chinese trade surpluses are the result of two decades of exuberant investments by American companies in China. Their goal: to take advantage of its huge pool of dirt-cheap labor—though that’s gradually changing. There are other incentives, like its lack of environmental regulations. But that too is changing as the Chinese themselves worry about the air, soil, and water that are becoming increasingly toxic.
So it’s complicated. And there are no easy sound-bite solutions. But blaming our economic woes on the yuan is silly—though it’s politically expedient as it may distract American voters from the budgetary morass in Washington.