US passes bill targeting China for currency manipulation

[GoFlyKiteNow]

China targeted in bill on currency manipulation

House passes bill targeting China for currency manipulation

WASHINGTON (AP) -- The House has approved legislation that would allow the U.S. to seek trade sanctions against China and other nations for manipulating their currency to gain trade advantages.

The 348-79 vote Wednesday sends the measure to the Senate.
Senate supporters hope to get a vote on a similar proposal after Congress returns following the November congressional elections.

Supporters said the bill would allow the Obama administration to pressure China on an issue that they say has led to the loss of more than 2 million manufacturing jobs in the U.S. over the past decade.

The vote came as lawmakers scrambled to wrap up unfinished business so they can hit the campaign trail with a little over a month before the Nov. 2 elections. Polls show that the state of the economy and an unemployment rate that remains stuck at 9.6 percent are the top concerns of voters.

The measure was passed by a wide margin with 99 Republicans joining Democrats to vote yes. Those in opposition included 74 Republicans and five Democrats.

Supporters said the size of the vote should send a strong message to Beijing that Washington will not tolerate currency manipulation and other trade practices viewed as unfair to American workers.

House Speaker Nancy Pelosi said that in 20 years America's trade deficit with China has gone from $5 billion annually to $5 billion every week, an imbalance she said demanded action by Congress to protect American jobs.

"We do this because 1 million American jobs could be created if the Chinese government took its thumb off the scale and allowed its currency to respond to market forces," she said in a speech on the House floor.

American manufacturers contend that China's currency is undervalued by as much as 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

 

[annexa]

The world does not belong to USA. Devalue your own currency if you dare. If you don't want to screw up your own country, don't force other people to screw up theirs.

 

[newyorker88]

Unfortunately, the world reserve currency is in USD, and they can say anything they want. Unless there is some other currency people can rely on.

 

[GoFlyKiteNow]

Unfortunately, the world reserve currency is in USD, and they can say anything they want. Unless there is some other currency people can rely on.

You are right. There is now other reserve currency in global terms.

You can have a very big GDP/economy in the world. But if the currency has
no reserve status confidence, then thats it.

Park all your reserves in US dollar in bonds, treasuries and what not.
Under their terms and conditions.

 

[Whats4]

How To Stop Currency Manipulation Without A Trade War
By Daniel Gros on September 29, 2010 | More Posts By Daniel Gros | This article originally appeared on www.VoxEU.org.
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Buzz With the US threatening to label China a “currency manipulator”, this column presents a plan to address global imbalances without risking a trade war. It proposes a “reciprocity” requirement – if the US can’t buy Chinese government bonds, then China can’t buy US bonds either.


The endless discussions about global imbalances, and China’s supposedly self-serving exchange-rate policy, have for along resembled discussions about the weather; everybody talked about it, but nobody did anything. This is now changing.

The recent move by China to invest heavily in Japanese government bonds has set in motion a chain reaction. The Japanese authorities had little choice but to react to the Chinese move by intervening themselves in the only really liquid market, namely the market for dollars. Japan got the blame for its “unilateral” move, but the end result was the same as if the Chinese had bought US assets themselves. The Japanese are only unwitting intermediaries, who, on top of the blame, have to take on even more exchange rate risk.

Overall it seems that the rest of the world with free capital markets can do little to stop the Central Bank of the People’s Republic of China to continue “steering” its exchange rate by accumulating more and more international reserves – it does not matter whether these are US or Japanese. The US, Japan, or the ECB cannot do the same because China has capital controls and there are simply no significant renminbi assets that foreigners are allowed to invest in.

The US political system has become so frustrated by this situation that Congress is now seriously considering whether to label the country a “currency manipulator” and impose trade sanctions which would be illegal under WTO rules and threaten to throw the global trading system into turmoil.

But there is another way. The US (and Japan) could easily prevent the Chinese Central Bank from continuing its intervention policy without breaking any international commitment. The US and Japan only need to invoke the principle of reciprocity and declare that they will limit sales of their public debt henceforth to only include official institutions from countries in which they themselves are allowed to buy and hold public debt. Instead of the “moral suasion”, tried in vain by the Japanese, the Chinese authorities would just be told that they can buy more US T-bills Japanese bonds only if they allow foreigners to buy domestic Chinese debt.

Imposing such a “reciprocity” requirement on capital flows would be perfectly legal – although the US (and Japan and all EU member countries) have notified the IMF that they have liberalised capital movements under Article VIII of the IMF. Yet, in contrast to the area of trade, there are no legal constraints on the impositions of capital controls.

This “reciprocity” measure would of course be equivalent to a very specific form of controls on capital inflows. Capital controls are always somewhat leaky, but not in this case because the Chinese Central Bank would find it difficult to hide its huge investments going through western financial institutions. No reputable financial institution would dare to become a hidden intermediary for the Chinese given that no institution bidding for hundreds of billions of T-Bill would take the risk of secretly fronting the Chinese government or central bank as it would have to certify that the beneficial owner is not from a country in which foreigners cannot buy and hold public debt instruments.

As a practical matter the introduction of the reciprocity requirement should provide a grand fathering of the existing stocks of Chinese official assets abroad (already above $2,500 billion). However, the Central Bank of China would still not be able to continue its interventionist policy – and that is what counts for foreign exchange markets.

The immediate objection is, “What if the Chinese react emotionally and dump their holdings of T-Bills and US agency debt on the market? Would that not disrupt the US government debt market?” This “dumping” is not as simple as it sounds. What assets would the Chinese Central Bank buy when it sells T-Bills? There are not many choices if the Chinese Central Bank wants to dispose of thousands of billions of dollars. Either it holds cash in the form of bank deposits (this would mean a massive refinancing of the US banking system) or it buys other US assets (which would mean a refinancing of the US private sector). Moreover, the reciprocity requirement could be extended to private debt instruments as well. But this is probably not necessary as the Chinese Central Bank is unlikely to invest hundreds of billions of dollars (or euro) in private assets. Buying euro assets would of course constitute an alternative, but this does not appear too attractive at present, and would be prevented by the Europeans adopting the same reciprocity requirement.

The US might hesitate to impose a reciprocity requirement for sales of its public debt because (in contrast to Japan) it needs foreign financing for its public sector deficit. But this also constitutes the litmus test for the sincerity of the US position which cannot have it both ways, i.e. Chinese financing of its external deficit and an end to currency intervention. The choice is now up to the US, it can easily stop Chinese interventions without violating any international commitment if it is willing to rely on domestic savings to finance its own fiscal deficits.

 

[neddy]

Unfortunately, the world reserve currency is in USD, and they can say anything they want. Unless there is some other currency people can rely on.

Gold!
year 1973, 1 oz = US$37
year 2010, 1 oz = US$1340

The world does not belong to USA. Devalue your own currency if you dare. If you don't want to screw up your own country, don't force other people to screw up theirs.

The US is doing just that, devaluing their own currency to export their way out of the current trouble. But what they did not realise that they are causing hardship for themselves if RMB go up. The Americans will then need to pay more for Chinese import.

China targeted in bill on currency manipulation

House passes bill targeting China for currency manipulation

......

"We do this because 1 million American jobs could be created if the Chinese government took its thumb off the scale and allowed its currency to respond to market forces," she said in a speech on the House floor.

American manufacturers contend that China's currency is undervalued by as much as 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

The Americans did the same to Japan in 1985 but the jobs never return to USA, instead, the jobs went to Malaysia and other cheaper countries.

It will be the same this time around.


Americans do not like bitter medicine, so the world has to take the medicine on their behalf!

 

[Whats4]

It’s A Race To The Bottom For Global Currencies And The Winner Will Be Gold
By Michael Snyder on September 28, 2010 | More Posts By Michael Snyder | Author's Website
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Buzz In 2010, any nation that has a weak currency has a very significant competitive advantage in global trade. A weak currency means that the products and services produced by that nation will be less expensive for other nations. Therefore other nations will buy more of those products and services. When exports go up, employment goes up and more wealth flows into the country. Alternatively, when the value of a national currency declines, exports do down, unemployment increases and less wealth flows into the country. Therefore, dozens of exporting nations around the globe have become increasingly determined to keep their national currencies very weak in an attempt to maintain a competitive advantage in the global marketplace. Essentially what we have is a race to the bottom among global currencies. Whenever any nation wants to gain a little bit more of an edge in global trade they push the value of their currency down just a little bit more. So who is the winner in all of this? Well, that is easy. Gold, silver and other precious metals will continue to be the winners as fiat currencies all over the globe continue to decline in value.

Quite a few nations have been openly manipulating their national currencies for many years, but now currency issues are starting to make front page news. Things are starting to get quite tense out there. Major importing nations are starting to resent the fact that they have been burned by all of this currency manipulation and major exporting nations are absolutely determined not to lose the economic gains that they have achieved as a result of their currency manipulation.

In recent months, nation after nation has been taking steps to weaken their national currencies. Every time another currency gets devalued the hostility in the global marketplace just seems to grow. In fact, Brazil’s finance minister recently was very honest about the fact that the nations of the world are now engaged in a very open “international currency war”….

“We’re in the midst of an international currency war, a general weakening of currency.”

So where does all of this end?

Well, to some the answer is to adopt a global currency. But let us hope that never, ever happens because it would be the end of economic sovereignty for every nation on the face of the earth.

To others, the answer is for the nations that are being taken advantage of to stand up and to declare that they are not going to take it anymore.

Perhaps the most glaring example of one nation taking example of another is what China is doing to the United States.

In my recent article entitled “Currency War” I described the effect that currency manipulation by the Chinese government is having on trade between the U.S. and China….

For years, China has kept the value of their currency artificially low. Even though China has made a few small moves toward a more free-floating currency policy, at this point China’s currency is still pretty much pegged to the U.S. dollar. It is estimated that the Chinese government is keeping China’s currency at a value about 40 percent lower than what it should be. This is essentially a de facto subsidy to China’s exporters.

By keeping their currency essentially pegged to the U.S. dollar at such a low value, China is able to flood the U.S. market with incredibly cheap goods and services. But this has created an absolutely massive trade imbalance. Today, the United States spends $3.90 on Chinese goods for every $1.00 that the Chinese spend on American goods. Jobs and wealth are flowing out of the United States and into China at a pace that is almost unimaginable.

The Chinese know that if they let the value of their currency rise substantially it would have a devastating impact on their economy. Chinese Premier Wen Jiabao was recently quoted in The Telegraph as saying the following about what would happen if the value of Chinese currency was to rise substantially….

“I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs.”

So instead American factories get to go bankrupt and millions of American workers get to lose their jobs.

Is that fair?

Meanwhile, other nations around the world are busy debasing their currencies. For example, Japan recently made a 12 billion dollar move in world currency markets to debase the value of the yen.

Earlier this year, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.

It truly is a race to the bottom.

So who benefits?

Gold, silver and other precious metals of course.

Gold recently topped $1,300 an ounce.

Silver has been absolutely soaring.

Exporting nations such as China and India have been gobbling up gold and other precious metals every time there is a little bit of a dip. They are tired of piling up endless amounts of U.S. dollars and they are seeking to diversify into something more solid.

The trend toward gold and precious metals is so hot that one German firm that installs gold vending machines now has plans to introduce them into the United States later this year.

It seems like everyone wants gold right now.

Not that gold is any more valuable than it ever has been.

It is just that it is not going down in value like all of the fiat paper currencies around the world are.

This is not a good time to have faith in paper currencies – particularly the U.S. dollar.

Already the dollar has been slipping substantially and the Federal Reserve has not really even cranked up the next round of quantitative easing yet.

One of the easiest things to do when there are economic problems in a nation is to pump more paper money into the economy. More paper money gives people something to spend, it spurs economic activity, it helps exports (as described above), and it helps put people back to work.

Of course it also destroys the value of the currency, but we will get to that in a minute.

With millions upon millions of Americans out of work, and with millions of homes being foreclosed, and with poverty statistics soaring into uncharted territory, it is very tempting for our politicians in Washington to borrow even more paper money and to pump it into the economy in an attempt to get things going again. But right now an election is coming up and the Tea Party has raised such a ruckus about government debt that there isn’t much appetite for more “stimulus packages” right now.

Of course the truth is that “stimulus packages” never solve any of our long-term problems anyway. The reality is that they just give our economy a short-term “high” and make our long-term debt problems even worse.

Not that the U.S. government is not quietly up to some monkey business. On Friday, federal regulators announced a 30 billion dollar bailout of the nation’s wholesale credit union system.

Another bailout?

Just what we need, eh?

But in general, the U.S. government is not doing a whole lot more reckless spending right now.

However, the Federal Reserve can inject more paper money into the economy without the help of Congress. Under the guise of “quantitative easing”, the Federal Reserve makes up money out of thin air and pumps it into the economy by buying up U.S. Treasuries, mortgage-backed securities or anything else that they feel like buying.

So is this going to happen again any time soon?

There are all kinds of whispers on Wall Street that this is exactly what the Fed is going to do and that it is going to be massive.

And quantitative easing would probably stimulate the U.S. economy in the short-term.

However, it would also seriously damage the value of the U.S. dollar.

You see, the truth is that when more dollars are introduced into the system, the value of each existing dollar goes down.

It is called inflation, and it is a hidden tax on all of us.

Think of it this way. If you put five dollars away today and you anticipate that you will be able to buy two loaves of bread with it three years from now, you will be greatly disappointed if when that day arrives a loaf of bread now costs five dollars and you can only purchase one loaf.

When the purchasing power of the dollar declines, it is a tax on every single dollar in every single wallet and bank account in the United States.

Since 1913, the U.S. dollar has lost over 96 percent of its value. Unfortunately, as ever increasing mountains of paper money continue to be required to keep our financial system solvent, the rate of decline of the value of the dollar is only going to increase in the years ahead.

So when you are watching the news and you hear that the Federal Reserve has announced some more “quantitative easing”, you might want to watch your wallet because you are about to be taxed. Your dollars will still be there - they just won’t go as far as they used to.

But in the twisted global economic system that our politicians have created, if the U.S. does not devalue the dollar we will lose factories, jobs and wealth at an even faster pace.

How sick is that?

So do not put your trust in the U.S. dollar. In the end, it will fail.

So what do all of you think? Feel free to leave a comment with your opinion (sane of otherwise) below….

 

[Robert Half]

China need not comply to USA bills

 

[FlipSide]

The world does not belong to USA. Devalue your own currency if you dare. If you don't want to screw up your own country, don't force other people to screw up theirs.

CHina artificially pegging the yuan value low is done by
whacking its workers into submission to the diktat
of the party bosses. The workers have no choice.
But it sure keep the value of production low.

This ability of China to peg its currency in such a manner is actually
a public shame. Nothing to be proud of .

Well, in China, who the hell cares about workers rights or for that
matter human rights.

 

[Royalblood]

CHina artificially pegging the yuan value low is done by
whacking its workers into submission to the diktat
of the party bosses. The workers have no choice.
But it sure keep the value of production low.

This ability of China to peg its currency in such a manner is actually
a public shame. Nothing to be proud of .

Well, in China, who the hell cares about workers rights or for that
matter human rights.

How is that going to contribute to a lower yuan value?

The more lax workers' rights enforcement in China can only serve to make their products cheaper.


China is a saver's economy and has the resources to buy and sell USD in large quantity to affect the USD value. The US losers are just a bunch of pauper green-eyed monsters angry and jealous at Chinese non-yielding attitude and its economic prowess!

 

[GoFlyKiteNow]

How is that going to contribute to a lower yuan value?

The more lax workers' rights enforcement in China can only serve to make their products cheaper.


China is a saver's economy and has the resources to buy and sell USD in large quantity to affect the USD value. The US losers are just a bunch of pauper green-eyed monsters angry and jealous at Chinese non-yielding attitude and its economic prowess!

Two points to take note of.

1. The USA does not ask China to buy its dollars. It is China which is
desperate to retain its reserves in USD. Not even in its own currency.

2. Why is China so afraid to float its currency ?
If so many other nations can float their currency ( G8),
it should make people wonder why the PRC is unable
to do the same !!

 

[Cestbon]

US try to escape from their own poor management. RMB value increase by 10% , US consumer still will be buying China product because still much much cheaper than made in US products. The US consumer will suffer more because of sudden inflation of 10% made of China.
In the end China will gain but maybe lose some conmpetition to India/ASEAN country.
US just have to cut spending just like in Europe. If not US is on the road to just like USSR. Maybe some state will declare independent because other state maybe burden to them.

 

[besotted]

Both will suffer greatly in a trade war

But Chinese are able to take suffering more than Americans and will survive better

 

[Ramseth]

The US is unable to upkeep their own USD value with their deficit and overborrowing, the debt of which Japan and China are major creditors. The Japanese Yen has been screwed upwards so much that Japanese lost tons of dollars on their debtholding already. Now the US is trying to play the same trick with China, which is much harder since China is not a surrendered and compliant nation like Japan.

 

[FlipSide]

Both will suffer greatly in a trade war

But Chinese are able to take suffering more than Americans and will survive better

All this doomsday talk about USA and its dollar is shit etc etc - just talk only. Nothing happens or has happened so far.

But we hear for decades, repeatedly, this doomsday talk that USA will fall to pieces. Will destroy itself and so on.

It looks like the other countries that export to USA is getting all the shit now, because the USA refuse to buy from them like before.

The facts are there. What for argue with facts ?

 

[longbow]

US elections just a few months away so this currency manipulation is good politics. Here is the real world:

1) Chinese increase of Yuan will NOT mean more jobs for US. US do not have industries that compete with the Chinese. In fact a strong Chinese currency might actuall weaken profits for the thousands of US firms that have the factories in China.

2) Currency is but just 1 factor in competitiveness of a country. China remains very competitive in terms of infrastructure (just go take a look at the current Commonwealth Games in India and you know what I mean - come on - I keep seeing these women squatting down sweep the roads with their kids next to them. These kids should be in school!!!!), cheap labor in the inner parts, the supply chain and most impt of all the huge domestic market. So it is not just currency. Recently, Beijing gave the nod to huge increases in minimum wages. Up to 100% increase! If that does not weaken China's comeptitiveness then a few percentage point in Yuan/US $ is not going to matter.

3) US makes products that do not really compete with the Chinese goods - aircraft, sophisticated industrial tools, software, branded goods - the Chinese will still buy regardless of level of exchange rate. Commodities have shot up many folds but that has not dampen Chinese demand. The iphone is selling like hotcakes.

4) Chinese controls on the Yuan has meant that they are forced to buy US debt. Now if they stop buying, who will buy? All the 1st world nations are running huge deficits. Even traditional buyer of US Treasury, Japan is now selling their debt to China. US is going to run deficits as far as the eye can see.

In short I do not see any country that can compete with China for the next 10 years. It has the sheer market size (it is Japan's largest export market), it has a cost advantage in terms of infrastructure, cheap wages (in the interior cities) and supply chain. Read in this forum that only one Chinese company has the technology/equipment/process to make the new white iphone - that is what I mean by excellent supply Chain.

Much has been said about India but just take a look at the Commonwealth games. Billions have been looted. Corruption is normal in 3rd world country but please lah, after creaming off that 40% at least come out with a decent finished product. Also the pictures I have seen from Commonwealth games shows that nothing has changed. Crappy tiny roads, slums, people peeing and pooping all over the place, animals wondering on public roads. India is the next big competitor to China but it has a long way to go. Just huffing and puffing democracy is not going to do much. Especially when you have the same old same old corruption and the shoddy work. Do you think Steve Jobs is going to say, hmmm that is where I will build my new factory?

This whole devalution excercise is politics. Both US and China are economic super powers that need each other.

 

[scoobyhoo]

currency war or actual war can be avoided?

 

[Wang Ye]

After that they will blame the mexicans.

 

[GoFlyKiteNow]

US elections just a few months away so this currency manipulation is good politics. Here is the real world:

1) Chinese increase of Yuan will NOT mean more jobs for US. US do not have industries that compete with the Chinese. In fact a strong Chinese currency might actuall weaken profits for the thousands of US firms that have the factories in China.

Can you name a few crtical or high value industries that the USA does not have which China has ..competitively speaking ?
It may just choose not to have some industries , out of plain choice
and rather import the products. Eg: Run of the mill industries like
cheap toys makers, plastic utensils etc.
However where it does have them, the quality level is far superior to
those produced in China.


2) Currency is but just 1 factor in competitiveness of a country.

Currency is everything..if you refer the US dollar as the sole global
reserve currency.

China remains very competitive in terms of infrastructure (just go take a look at the current Commonwealth Games in India and you know what I mean - come on - I keep seeing these women squatting down sweep the roads with their kids next to them.

What infrastructure does China have that outpace the USA ?
In fact the real infrastructure - the strong institutions, legal systems,
the transparency mechanism in place. China does not even come close
by a distant century even.! These are the real intangibles.
Intangibles create the real wealth.

Enough said.!

These kids should be in school!!!!), cheap labor in the inner parts, the supply chain and most impt of all the huge domestic market. So it is not just currency. Recently, Beijing gave the nod to huge increases in minimum wages. Up to 100% increase! If that does not weaken China's comeptitiveness then a few percentage point in Yuan/US $ is not going to matter.

Is this a credible or relevant argument or debate.?

3) US makes products that do not really compete with the Chinese goods - aircraft, sophisticated industrial tools, software, branded goods - the Chinese will still buy regardless of level of exchange rate. Commodities have shot up many folds but that has not dampen Chinese demand. The iphone is selling like hotcakes.

Shallow thinking. !

4) Chinese controls on the Yuan has meant that they are forced to buy US debt. Now if they stop buying, who will buy? All the 1st world nations are running huge deficits. Even traditional buyer of US Treasury, Japan is now selling their debt to China. US is going to run deficits as far as the eye can see.

who ill buy ?... good question.
Economics is nothing but confidence. And money goes where it is
confident to be safe and secure.

In short I do not see any country that can compete with China for the next 10 years. It has the sheer market size (it is Japan's largest export market), it has a cost advantage in terms of infrastructure, cheap wages (in the interior cities) and supply chain. Read in this forum that only one Chinese company has the technology/equipment/process to make the new white iphone - that is what I mean by excellent supply Chain.

Moot point of discussion.
This thread is about currency peg adjustments.

Much has been said about India but just take a look at the Commonwealth games. Billions have been looted.

Again India !!
What the heck has India got to do with this thread ..man..please
read and understand the topic and please do not diverge into
irrelevance.

Corruption is normal in 3rd world country but please lah, after creaming off that 40% at least come out with a decent finished product. Also the pictures I have seen from Commonwealth games shows that nothing has changed. Crappy tiny roads, slums, people peeing and pooping all over the place, animals wondering on public roads. India is the next big competitor to China but it has a long way to go. Just huffing and puffing democracy is not going to do much. Especially when you have the same old same old corruption and the shoddy work. Do you think Steve Jobs is going to say, hmmm that is where I will build my new factory?

This whole devalution excercise is politics. Both US and China are economic super powers that need each other.

Like I said.. make the discussion coherent and relevant.
Then it is informative and lively.

 

[Cestbon]

After that they will blame the mexicans.

Blame everyone but not them self for spending like no tomorrow. The debt keep on growing at the rate at least US$1 trillion a year.
Now total US debt have climb to US$13 trillion with interest 3.5% alone can slowly bleed US to bankrupt.
US on the way to face bankrupt in next 10 year. Currently US still able to cope with the repayment and interest because they still can convince people to buy their debt.,