America's Joke of a China Policy

geithner zone
Where have we heard this before? Geithner is once again claiming China and the United States could cooperate, this time by giving away more of American advanced technology. Firstly, Geithner mentions China's currency manipulation.

China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country.

These policies have the effect of keeping the Chinese currency substantially undervalued.

They also impose substantial costs on other emerging economies that run more flexible exchanges rates, and as a result have experienced a substantial loss of competitiveness against China.

This is not a tenable policy for China or for the world economy.

Yet in the same speech, Treasury Secretary Geithner seems to imply U.S. companies, technologies are on the table as a bargaining chip to get China to re-evaluate their Yuan:

China’s objectives are focused on the following areas:

  • China wants more access to U.S. high technology products. 
  • China to take greater advantage of investment opportunities in the United States.
  • China would like to be accorded the same terms of access that market economies enjoy.  

We are willing to make progress on these issues, but our ability to move on these issues will depend of course on how much progress we see from China.

Nothing happens with China and if it does, you can bet that's because China has moved onto another policy, another industry, another target that creates unfair trade, labor arbitrage for America. China just zooms down the road America literally built for them to economic superpower status.

Our government could easily pass a bill to put tariffs on all Chinese goods in a heartbeat and do something. It's obvious China has no intention of re-evaluating their currency, reducing exports or just about anything that would stop their global economic domination path. Geithner is once again, just giving lip service to the increasingly obvious China problem.

From this must read report on China, it's clear China has a host of policies in place to make sure the United States loses on the global economic front. Geithner literally said:

China’s rise offers us the opportunity of dramatic growth in demand for things Americans create and produce. But it also will force us to raise our game.

What, the lay down, economic doormat game? The multinational corporate agenda, screw the United States game? Or is it another bad hand in the Obama administration's poker game of folding before even first ante, like the Texas Fold 'Em tax cuts for the rich play?

In the speech, Geithner claims the U.S. is on track to export $100 billion dollars worth of goods and services to China this year. Firstly, on a customs basis, even if one duplicates the $9 billion October exports data to November and December, which isn't publicly reported yet, it's $90.9 billion in exports to China, not $100 billion. This is taking an unusually high monthly October export number to boot in this calculation. Below is our great trade export with China. The U.S. is the #1 destination for Chinese imports.

 

 

China is importing commodities, raw materials, like soybeans, organic chemicals, steel and aluminum scrap metal. Our recycled paper gets shipped out to China. Beyond aircraft and sometimes capital goods, we simply are not selling finished goods, which means American jobs, to China. If U.S. multinationals sell finished goods to China, odds on they shipped manufacturing, the plant and the jobs over there. One of the typical top 10 U.S. exports to China from the United States is silicon. Think Silicon Valley and realize we literally are exporting our high tech manufacturing to China, even the raw materials along with it.

From the October trade report, the below graph and data is worth repeating.

Below is the raw customs basis accounting of the trade deficit with China, not seasonally adjusted. China alone is 48.6% of the trade deficit. On a Balance of Payments basis, not seasonally adjusted, so far this year the trade deficit is -$539,468 billion, a 31.2% increase from last year.

 

 

In other words, our exports to China are trivial in comparison to the import problem.

The United States lost 2.4 million jobs to China from 2001-2008 and over half a million jobs were lost to China in 2010 alone.

China has a massive trade surplus, is moving to make their currency global and China's foreign currency reserves, used to keep their currency exchange rate artificially low, have reached a record $2.85 trillion.

The U.S.-China Economic & Security Review Commission just released a new report, The National Security Implications of Investments and Products from the People’s Republic of China in the Telecommunications Sector. It's about China penetration into American companies and technologies as a major national security vulnerability. Remember, most DDoS attacks and other cyber-attacks are coming from China.

The report discusses how China’s growing involvement and investment in U.S. telecommunications supply chains and companies, including the penetration of the U.S. marketplace by companies subject to ownership, control, or influence by the People’s Republic of China, could eventually provide China with access to or control of vital U.S. and allied information, networks, or segments of critical supply chains. It also describes some of the potential security vulnerabilities in communications tetworks that might be exploited by hostile actors, whether state-sponsored or otherwise.

Look at the report findings and believe this commission. You do not want China dictating the globe's international engineering and technology standards. If you think Verizon is evil and Facebook is some punk looking up the skirts of America, try having China dictate engineering standards and technologies. You ain't seen nothing from bandwidth to licensing fees to interoperability issues to technical and security vulnerabilities to some pretty damn interesting COTS military malware infested components.

  • Products designated as domestic under Buy America and Trade Agreements Act rules, and purchased from a domestic U.S. company, may still be partly or largely sourced from an overseas supplier
  • Protocols for how networks will communicate will likely be heavily influenced by China, and manufacturers outside of the China market may begin to lose global market share in dramatic fashion
  • For America to remain competitive and generate future innovations, as well as to maintain control over technology standards, it is essential to provide incentives for continued development of the U.S. scientific and engineering workforce.

Notice that last line. American technical workers, those in Science, Technology, Engineering and Mathematics have been under attack for labor arbitrage, starting in the 1990's and accelerating dramatically in the past decade. Now, because this critical career path is so unstable, demanding and vulnerable to labor arbitrage, displacement through offshore outsourcing, foreign guest workers and age discrimination, sex discrimination....we have a security report telling our government they had better stop giving U.S. technical workers the shaft.

Yes Virginia, national loyalty does matter.

Economist Peter Morici continually pounds cable noise, trying to get a few facts out there on China trade policy.

Well, let’s look at tariffs. In the United States, our average tariff is maybe 2.5% or 3%. In China, it’s more like 25%. Under the WTO agreements, which govern all trade internationally, developing countries are given special and deferential treatment. They’re permitted to have higher tariffs, and they’re permitted to not play by quite the same rules when it comes to the various codes that the WTO has.

Bottom line, China chisels on its currency. As a 40% undervalued currency, it spends $250 billion a year to keep it undervalued, and that floods our market with subsidized goods. So instead of having balanced trade where we buy those things they can make with their inexpensive labor, and we sell them things like Caterpillar tractors — Caterpillar finds it more profitable to establish a tractor company over there.

So we lose jobs when we import, but we don’t gain new jobs to replace them by exporting. So instead of having 5% unemployment, we have 10% unemployment.

If none of this gets through to you, please watch the latest Sunday Morning Comics for a great cartoon video explaining why China and their currency manipulation is such a big deal. Again, Congress could act in two minutes, but only if the public demands it.

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Comments

China is the symptom not the cause

While I do agree that China's weak yuan policies are taking advantage of US economic policy/partnering with MNCs and US oligarchs offshoring, the reality is that the problem isn't China.

The problem is FIRE.

Germany has very much the same level of prosperity as the US, but Germany is able to grow its economy. Yes, they have the common Euro with the EU, but the US in turn has its NAFTA and dollar world reserve currency.

The difference between the German economy and the US is economic policy: the US coddles its banksters whereas in Germany the banksters only have a role.

Note the EU/Germany proposing bond holders take a shot in the guts for bad bank debts whereas the US bails out its banksters and only sticks a few bondholders - like GM - with a seniority demotion.

Fix FIRE, then the rest will start to come in line.

Start a tariff war, and we'll get Hawley Smoot all over again.

Last time since the US was China, it more or less worked out. This time the US is Britain in 1933.

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good points on Germany, FIRE = finance, insurance, real estate

In a way, I'd agree with you, it is the MNCs and the U.S. which "created" China in the first place.

On tariffs, this is just for currency manipulation. China has high tariffs on many U.S. goods, they also have a VAT which they have changed daily in some cases as a trade barrier tool.

Germany would be a very good case study here to compare what they are and have been doing versus the United States. They have higher wages than the U.S. I believe and have an export surplus, a very healthy manufacturing sector. If you want to write an article on Germany, you can on this site (but you must be registered) and if you see one going into the above, let's check it out.

I know on the bankster front that's right, Germany made them take somewhat of a bath.

That said, right now, I think they need to enact some cross the border tariff and just plain do it. China has outmaneuvered and is so much more strategic and smarter than the United States every time and I think it's because they know the U.S. won't do much of anything.

You could do a graduated tariff across the board in order to not cause economic shocks.

MNC = multinational corporation
VAT = value added tax

for those singing along at home

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Auerback nails it on China

I don't actually care for this guy's "philosophy" but this particular post is dead on, although he's talking about plain econ/trade, so I don't see what's so social about it, we're getting our ass kicked and major policy needs to change.

Great idea about taxing corporations on jobs LOST, not jobs created! A few other policy ideas contained within.

Chinese Trade Policy must focus on social consequences.

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details on China imports & exports for 2009

I've yet to locate just the monthly statistics but the yearly China imports are here and exports are here.

Computers, toys, clothes are huge imports from China, with computers really being the one that *should not*, in terms of American jobs. I cannot believe the U.S. cannot use robotics and automation to be competitive in churning out a finished computer. Frankly they are "pretty Lego", so if someone can manufacture Silicon wafers here, why not computers by assembly? Cars here, why not computers? Semiconductors is still a large U.S. export to China, and that has to mean processors, which is so much more complex of a manufacturing process.

Of course soybeans is #1 for 2009 of U.S. exports to China and you can see a how of items where we used to dominate in manufacturing that clearly were offshore outsourced to China, now coming in as imports.

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Deindustrialisation

Germany is not perfect but the Germans have never been convinced that the Anglo Saxon model of capitalism creates genuine real wealth and consequently their system has been largely geared to supporting and creating productive investment which has enabled them to compete effectively with low cost manufacturing (China). In fact a number of Germans I have talked to think the UK and US are mad to neglect and stand idly by while the value of key industries is destroyed.

The 'GDP' measures we utilize treat all investment flows as a positive but in the case of the US, UK, etc, this has proven to be a house of cards as they are not all the same. The difference being that investments in physical assets and people (factories, capital and trained labour) generates tradable goods that earns foreign exchange while debt finance is an illusion as we are realizing to our considerable cost.

Many of the so called 'economic theories' based on economic rationalism and Monetarism have simply been a cover to enable finance capital to flourish. In reality no amount of money/debt/credit created will aid an economy if the fundamentals are not in place. There are not thousands of factories sitting idle in the US ready to burst back into life - they have been closed down, shipped overseas and the valuable labour skills have been lost. It takes time, resources and considerable effort to build capacity.

So while Germany has continued to embrace its industrial capacity and has invested in its stock of people, capital and technical capabilities we (the US, UK, etc) have deindustrialised rapidly as the economy has been increasing based on supporting consumption supported by debt rather than investing in production. So much so that we have reached a point where you cannot borrow anymore and as there is nothing to trade with the population will get poorer.

People in many articles I've read are calling for a US 'national plan' to change the focus to investment in manufacturing, etc. The will never work as long as the 'elites' that currently control and influence US policy to support the banks and financial institutions are in place. The financial institutions are parasitic, add no value and skim wealth of from the real economy. An alternative strategy to regeneration of the real US economy would break their hold and influence.

The point being is that without change the real economy will continue to shrink. All the Chinese have done is exploit the strategic and policy stance of the US to their benefit. The US is following the low cost economies to the bottom - a world based on the cheapest labour inputs rather than having a strategy in place to generate value through an investment in skills and capital within the US economy.

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Commerce Secretary Locke "Protectionist"

I find it dismal when anyone screams "Protectionist" policies. Good God, this country was built on protectionist policies and so was China.

Regardless, we have more political rumblings on China, although I'm extremely skeptical as noted by this piece.

They need to do something drastic and stop acting like they can get China to change. They cannot, it's America that needs to change and also rein in their labor arbitraging globe hopping multinationals along with their Benedict Arnold mindset.

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New GOP want action on China currency

This is a surprise, New GOP wants action on China currency.

That said, instead of Democratic leadership refusing to do anything, now of course we have House GOP leadership....refusing to take the bill to the floor for a vote.

This bill has bi-partisan support across the board, so once again, it's just a few "leaders" blocking any reform.

So, "not" Democratic, it's bad enough you have just 535 people representing the law desires of 309 million people, but then, the way Congress is structured, it all really boils down to just a few in Congress.

How "representative" is that?

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"Well, let’s look at tariffs.

"Well, let’s look at tariffs. In the United States, our average tariff is maybe 2.5% or 3%. In China, it’s more like 25%. Under the WTO agreements, which govern all trade internationally, developing countries are given special and deferential treatment. They’re permitted to have higher tariffs, and they’re permitted to not play by quite the same rules when it comes to the various codes that the WTO has."

How is it that the second largest economy in the world is considered a "developing" economy and gets special treatment with regard to tariffs and trade? Why don't the cabal of morons at the WTO recognize this absurdity? I wonder what would happen if the WTO stripped China of its "developing" status. I doubt China would be in a position to ruthlessly abuse this absurd status to the detriment of all other nations.

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multinational corporations

It gets worse than that, China has only lowered their tariffs after they literally capture the market. So, say clothing, all of those people lost their jobs the entire industry moved to China, U.S. hardly makes any clothes anymore, tariffs lowered.

Then....China has a VAT, which can act like a "dynamic" tariff, most countries have a VAT, except the U.S.

This was mentioned on Dylan Ratigan (intermingled with some Forbes corporate denial guest), that it is multinational corporations who want nothing done on China, since that's where they manufacture, plus their mythical consumer market. Caterpillar for example has been busy offshore outsourcing jobs, firing Americans, IBM is notorious, list goes on and on...

So, in terms of killing the beasts, frankly the U.S. refuses to reign in their multinationals, hell, they run and rule the country, but China actually can and it wouldn't surprise me in the long run, that's what China does....

i.e. sell the rope with which to hang them.

Charles McMillion has a tariff schedule, detailed but it's old, he's an economist, heavily focused on manufacturing, as well as China.

Then, on this site lots of posts on China since it's clearly this massive drag, a real economic threat on the U.S. economy, especially the U.S. worker.

Services, esp. tech, it's India, but in terms of jobs, even on tech, it's China.

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