new call for protectionist measures against China ???
(snip)"Here in Panama at the Sovereign Society Wealth Symposium, I have heard many a conversation centering around China... What's going to happen there? Will we place further tariffs on their goods, etc.
I've explained to everyone that as far as I am aware... There are currently 3 subcommittees from the U.S. House of Representatives that will hold joint hearings on Wednesday, May 9th, to focus on China... The discussions will center on to what extent not only China's renminbi is undervalued as a result of the Government, but also Japan's yen.
They will most likely come to the conclusion that these are "highly manipulated" currencies by each respective government. Now here's where it gets really meaty... The subcommittees, if finding the currencies are manipulated, will then discuss two things... 1. What further tariffs should be placed on their goods coming to the U.S. and... 2. why the U.S. Gov't, namely the Treasury Dept., has not done more to rectify this situation.
Uh-Oh... That sounds to me like they are greasing the tracks for the protectionism measures that are already in the pipeline! I don't need to tell you, or maybe I do... That currency participants do NOT favor protectionism measures! I would take these past couple of days, and any future ones we have before we get to May 9th, and use them as buying opportunities for the currencies, because if this all plays out, the dollar is going to be taken to the woodshed, and not just for a swat! Ok... Dollar, go on out into the field and select the switch you wish to be beaten with!
U.S. Treasury Secretary Henry Paulson has been making headlines lately preparing for his talks with Chinese economic leaders in Washington in three weeks. Yesterday Paulson called the low returns Chinese earn on internal savings "perverse." He feels these low rates of return are one of the main reasons for the lack of consumption in China, which has helped fuel their huge trade surplus. Paulson would like to see the Chinese leaders encourage consumption by their people. China's savers are earning about 2.5% on their roughly $2 trillion in assets, even as the economy advances. That means savers must save more of their income, rather than spend, to meet their investment goals. China has a 50% savings rate, which limits domestic spending and leaves the nation reliant on exports. Paulson believes the biggest driver of the record U.S. trade deficit with China is due to the "structure" of China's economy.
I have got to disagree with Secretary Paulson on this one. Yes, I would love to see China's middle class become better consumers as even a small tick up in consumption would increase worldwide GDP. But don't blame the trade gap on frugal Chinese consumers, the reason for the trade gap is right here in the good old "borrow and spend" United States. Instead of preaching to other countries to be more like us, we should take a look at our own savings patterns. I don't have the figures handy this morning, but I have got to believe the U.S. has the world's worst savings rate. Deficit spending is rampant, from the government right on down to the consumer. We continue to flood the world markets with U.S. IOU's, driving down the future value of our nation. I think Paulson should look to educate consumers right here in the U.S. about savings rather than try and promote our bad habits onto others."(snip)
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Re: new call for protectionist measures against China ???
This is a new level of government retardation. China is propping up the value of the dollar (buying dollars). For the same reason we don't do shit about Darfur, we can't do shit about this:
It would piss the Chinese off, and if we piss the Chinese off, we're doomed today, not tomorrow.
Re: new call for protectionist measures against China ???
Re: new call for protectionist measures against China ???
yup, the China situation basically boils down to two issues IMHO. The first is a vast disparity in production costs. This is of course the results of the Chinese Gov't allowing factories to operate using cheap power from unscrubbed coal fired plants, allowing factories to emit an untold assortment of nasty gases and liquids without any real mandate for waste treatment, no gov't requirement that factory employers provide workplace safety restrictions, etc. These factors alone arguably allow factories in China to operate at a cost level that is 33-50% lower than US cost levels WITHOUT considering the labor cost component. In fact the only cost component that arguably costs the same in the US and in China are global commodity raw materials i.e. copper, aluminum, steel, plastic etc.
When you get to Chinese labor, other than a few highly skilled highly capable specialists, you're talking about unskilled or semi-skilled labor that is willing to work for $2 an hour or less. Then tack on the absence of any Chinese gov't mandate that employers must pay for employee health insurance or retirement benefits or social program taxes or workmen's comp or unemployment insurance. Thus there IS no comparison between net US labor costs and net Chinese labor costs.
As the article states the Chinese factory laborers have basically just moved to the cities from rural farming areas, such that 'something' in the way of a paycheck is better than the 'nothing' they earned before. Unlike US workers, Chinese workers vividly remember that 'bad times' can and do occur, thus even though their earnings are meager they do save a high percentage of what they do earn. This Chinese worker savings in turn winds up being recycled through international finance into an eventual loan to US consumers !!!
The serious risk is that Chinese workers may suddenly change their attitude and decide to start spending money instead of saving so much. At that point the Chinese workers will start building products for their own consumption i.e. tiny cars, refrigerators etc. Also at that point, the availability of cheap Chinese imported items will start to dry up, while at the same time the availability of money for 'low cost' US consumer loans will dry up as well !