Tuesday, October 4, 2011

US moves to punish Chinese yuan will increase cost of living for average Americans and has not effect on job creation

Some US senators are bulldozing for the Currency Exchange Rate Oversight Act. This bill, however, has limited support among the House of Representatives and the White House who know better not to risk more hardships for ordinary Americans, antagonise a major trade partner, without achieving the said objective of effectively reducing the trade deficit and creating more jobs. 

Some economists said they understood the politics of the debate but questioned whether the bill would bring back American jobs or prod China to move faster on currency reform.

"We consume a lot. The Chinese save a lot. We're going to run a trade imbalance with them," said Derek Scissors of the Heritage Foundation.   

An editorial from the  Washington Post claims the bill is counter-productive and does more harm than good. It is mere political rhetorical to project a "symbolism" with limited practical impact.

"But would it really create hundreds of thousands of jobs in the United States, as the bill’s advocates suggest? The verdict from an April briefing paper from the Federal Reserve Bank of St. Louis is: “probably not to any meaningful degree.” Overall U.S. employment is indeed a function of the U.S. balance of trade. While it’s true that the United States has been running a trade deficit for decades and that its deficit with China is a growing share of it, ending the trade deficit with China would not necessarily cure the overall U.S. trade imbalance. That’s because other low-wage countries that do not artificially depress their currencies could easily take China’s place. The components of many “Chinese” goods are already made elsewhere, imported by China for assembly and then reexported to the United States. Only 20 to 30 percent of the value of Chinese goods in the United States would be affected by a stronger currency.

Why risk costly Chinese retaliation for the sake of a measure whose practical impact could be so easily nullified anyway?

If Congress really wants to help American workers, it will end the stalemate and move these growth-enhancing pacts to final passage. The world economy has enough problems without adding a US-China trade rift to the list," 

"According to a US Treasury Department report, China made its exchange rate flexible last June due to its high inflation rates. On an inflation-adjusted basis, the appreciation is rising at an annual rate of more than 10 percent."

Strong opposition to the Bill from American business interests backed by the  powerful US-China Business Council will be a major stumbling block. With their profits and long-term interests to protect, corporations will ensure that their lobbyists get the message across to the majority of representatives not to vote

Nobel prize winning economist  Paul Krugman's contention has softened somewhat despite continuing to join in the xenophobic chorus as a clever diversion tactic to focus attention on a foreign bogeyman instead of addressing urgent and vital economic reforms in the USA.

"Holding China accountable won’t solve our economic problems on its own, but it can contribute to a solution — and it’s an action that’s long overdue."

More attention should be paid on  promoting US niche businesses and cooperation with Chinese state enterprises for mutual benefits which Americans will get to enjoy. 

First things first.  Get the house in order before criticising and pressuring others when one has limited leverage and effective solutions.  

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