First off, I want to give props to a guy who wrote a billiant piece for Dailykos which was so over the head of the normal debate there, it scrolled off into obscurity.
How "Free Trade" Led To Currency War
by davej
Wed Oct 06, 2010 at 01:06:04 PM CDT
Lyndon Johnson is said to have commented that the press is like birds sitting on a telephone line. When one flies away, they all fly away. This week they are all flying around squawking "currency war!" But the world has been in a currency/trade war for some time, with only one side fighting and the rest losing. Now the world, on the edge of defeat in that war, sees that China is not "trading" they are taking. So, how to fight back, without (further) blowing up the world's economy?
The world can't get to full recovery from this terrible recession without more balanced trade. That is a huge part of the equation. Our trade deficits started with Reagan when "free trade" was used to force concessions from labor by threatening to move the factories to non-democracies, away from the wage and environmental protections We, the People fought so hard to achieve. The wage squeeze resulted inunprecedented concentration of wealth - and loss of buying power for the rest of the population.
Under 'W' Bush, Wall Street used China for short-term profits and bonuses and China used the power that brought to buy advantage around the world. So now the rest of us are living with the long-term consequences of race-to-the-bottom policies. Namely, the bottom.
That loss of buying power -- lack of demand -- is holding back recovery. To lift the economy we need to lift wages. We can't get there without challenging current arrangements with China.
Yves Smith sums up this "full boil," in Currency War Threats Escalating, at naked capitalism,
Last week, the simmering threat of trade disputes erupted into a full boil when Brazil's finance minister Guido Mantega said that national governments around the world were weakening their currencies in an "international currency war" to gain competitive advantage. Mantega stressed that Brazil was prepared to back his words with action to lower the value of the Brazilian real. Yesterday, IMF chief Dominique Struass-Kahn warned that countries were beginning to use their currencies as "a policy weapon" in a Financial Times interview. more
Trade War Is Here -- and We've Disarmed
Robert Kuttner
Co-founder and co-editor of The American Prospect
Posted: October 3, 2010 10:39 PM
Last Wednesday, by a wide bipartisan margin of 348-79, the House passed a bill giving the executive branch authority to impose retaliatory tariffs on a wide range of Chinese exports. The bill was intended to give the Obama Administration leverage (which the White House seems quite disinclined to use) in continuing talks with Beijing about China's manipulation of its currency.
The usual suspects made alarmed clucking noises about jingoism and impending trade war. Writing in the New York Times op-ed page, Steven Roach, a senior executive with Morgan Stanley, contended that the real problem is the low US savings rate, which supposedly leads America to over-consume and pull in imports. This has been used as an alibi for decades, but the fact is that our savings rate bounces around while our trade deficit with China moves only in one direction. Global mega-banks like Morgan Stanley profit from the US China trade, even if America gets rolled. Even the Financial Times, usually pretty sensible, warned against a more assertive stance.
In truth, a trade war already exists, and it is being unilaterally waged by China. The entire Chinese industrial system uses a wide range of subsidies that violate both the letter and the spirit of the World Trade Organization. As the US-China Economic and Security Review Commission has long documented, China subsidizes exports, provides bank loans to industry at zero or negative interest rates, and either bribes or coerces US industry to locate production in China for export but not for China's internal market. All development land in China is owned by the government, which means that China can subsidize favored projects at will.
Supposedly, state socialism failed, but the Chinese have created an improbable combination of a one-party socialist state and predatory capitalism. American industry is so far into the tank with the Chinese and the U.S. government is so heavily dependent on the Chinese to buy our bonds that the administration can't imagine taking a hard line against Beijing. Our diplomats behave more like a client power genuflecting before the might of the imperial master than the dominant nation that the U.S. is supposed to be.
The Chinese system has succeeded in giving China a growth rate in excess of ten percent a year. It has created a new capitalist class, a burgeoning middle class, and an urban proletariat that lives relatively better in sweatshop conditions than in rural destitution.
The system works, sort of, for China. But it doesn't work for China's leading trading "partner" -- the United States. more
Meanwhile, we get the following take on Dave and Kuttner's POV
(and mine) argument from the conservative German newsmag,
Spiegel. Free trade has been better for Germany than most countries so not surprisingly, they look on at potential USA protectionism with horror.
The Specter of Protectionism
World Faces New Wave of Currency Wars
The US accuses China of undervaluing its currency.
An American bill imposing punitive tariffs on countries that undervalue their currencies is set to unleash a new trade war between the US and China. But in fact the whole global currency system is in a state of jeopardy. As confidence in the dollar drops, private investors are putting their faith in gold. By SPIEGEL Staff.
At first glance, the new bill sounds perfectly innocuous. "H. R. 2378 -- Currency Reform for Fair Trade Act" was on the agenda of the US House of Representatives late last Wednesday afternoon. Fair trade -- who could object to that?
But as the representatives started debating, it didn't sound harmless anymore. In fact, it sounded like war.
"International trade is a high-stakes, cutthroat business. And every time we simply talk, the other side acts. And every time they act, an American loses a job," said Xavier Becerra, a Democratic congressman from California.
Timothy Murphy, a Republican from Pennsylvania, went one step further: "We are about to lose our position as a global leader when next year China overtakes us as the biggest manufacturer in the world. The trouble is that China has never really accepted the basic rules of fair trade."
Democrat Linda Sanchez from California argued: "Opponents say that this bill will start a trade war. I say, we are already in a trade war. And China is using cannons and we're standing here shooting (air gun) pellets."
Verbal Attacks
There was one verbal attack right after the other, for roughly an hour. Speaker after speaker condemned the alleged "currency manipulators" from China who supposedly subsidize their products by keeping their currency artificially low. They all want to see H. R. 2378 passed into law.
A closer look at the fine print also reveals that the draft legislation is far from harmless. The bill calls for the US Department of Commerce to start imposing -- even without approval by US President Barack Obama -- punitive tariffs on certain countries. The initiative specifically targets countries that have "a fundamentally undervalued currency," "persistent global current account surpluses" and very large currency reserves -- in other words, China.
The bill passed the House by a vote of 348 to 79. "This is a stronger message than any previous one," says Nicholas Lardy from the Peterson Institute for International Economics. more
I have long maintained the USA was headed to Third World Status because of pre-industrial economic policies. So I am happy to see that Ms. Huffington, an immigrant from a fairly backward country (Greece) claims we have already arrived.
Arianna Huffington's "Third World America"
America's Self-Inflicted Wounds
By CHARLES R. LARSON
Perhaps only an immigrant could write Third World America—or, an observer, like Tocqueville, with whom Arianna Huffington shares uncanny perceptions and insights about our country. Last year I felt that Nicholas Kristol’s Half the Sky—a work about empowering women globally—was the most important book I read. This year isn’t over yet, but at the moment my vote goes to Third World America, which, if widely read, may have the power to jolt many people out of their lethargy. Before I began reading the book, I feared that it would simply be a litany of everything that is broken in the United States. But the strength of Huffington’s argument resides not only in her detailed reportage of serious problems in our country but her valuable proposals for fixing what is wrong. Is that still possible? I don’t know, but some part of me remains hopeful, more hopeful than I was before I read Third World America.
Broadly, Huffington focuses on the inequities created as a result of the enormous transference of wealth from the middle to the upper class during the past two decades, made possible by the complicity of politicians, lobbyists, corporations, bankers, Wall Street brokers, and the media. The lobbyists formulate legislation that favors lax regulation or none at all, and then the conservatives begin their distortions of fact and their fear-mongering. Laws are put into place that favor corporations over individuals, guaranteeing that consumers have few options, as their jobs disappear overseas because of business efficiencies that support the bottom line. People often vote against their own best interests, and—because the amount of misinformation is massive—have no true understanding of what is happening to them. Corporations have taken over our democracy. Huffington writes that with the “merging of state and private power, we’re getting to the point where the only difference between senior congressional staffers and lobbyists and influence launderers whose ranks they’ll soon join is the size of their paychecks.” Money at the top doesn’t trickle down, since it’s only moving in the opposite direction. One political party has only short-term goals, the other tries to focus on our future.
Through dozens of detailed examples describing the consequences of the country’s corporate takeover, Huffington connects the dots, providing shocking statistics and relating them to a wider context. Consider the following sequence concerning the mortgage debacle: “The vast majority of homeowners face foreclosure without legal counsel.” Recently, in New York’s Nassau County, “92 percent of homeowners [facing foreclosure] did not have a lawyer.” This situation wasn’t supposed to happen, but “in 1996, the budget for the Legal Services Corporation, the primary agency that provides help for low-income Americans in civil cases, was cut by a third.” The 1994 Republican “Contract with America” had already “severely limited the ability of homeowners to get legal protection from predatory lenders.” President Obama’s recent attempts to convince Congress to assist homeowners who are losing their homes have largely been unsuccessful. The $789 billion stimulus plan contained nothing “for foreclosure-related legal help”--but the banks got plenty. more
No comments:
Post a Comment