Television pundits from Lou Dobbs to Fox News have little love for China. The picture painted by men like Dobbs and other nationalist talking heads, is that competition with Japanese and Chinese companies, the growing trade deficit, and the outsourcing of jobs to China represent the greatest threat to the American economy. They couldn't be any further from the truth, and their banter consists of nothing more than hate-mongering.
Commenting on the Yellow Journalism in the Neoconservative publication,
The Weekly Standard, Robert P. Murphy writes for the Mises Institute:
|
Quote:
http://www.mises.org/story/2436
Today's case study is Irwin Stelzer's recent piece, "Worry About OPEC, Not China." Although international trade can get complicated, especially when fiat currencies are involved, Stelzer manages to pack an impressive amount of nonsense into a fairly short article. I offer this critique to shed some light on these confusing issues.
Strong Dollar Or Weak?
Stelzer opens by calling Treasury Secretary Hank Paulson's December trip to Beijing "mission impossible." Stelzer declares that "if their aim really was to pursue that oft-stated goal of US policy, a 'strong dollar,' the delegation … should have been rerouted to Riyadh."
Quite frankly, Stelzer has things exactly backwards. The Sinophobes are mad because the Chinese government is keeping the dollar artificially strong. This has the effect of, well, why don't I let Stelzer explain:
"To the consternation of many politicians, [China's] policy of pegging the yuan to the dollar undervalues the Chinese currency. This gives Chinese exporters a de facto subsidy, and makes made-in-the-USA goods … more expensive in China."
This last quotation is exactly right. (And that's why the entire premise of the article — namely that Paulson was trying to get a strong dollar with his trip to China — makes no sense.) Although jingoes might love a "strong dollar," American exporters actually pine for a weak dollar.
... The Chinese government is typical in that it wants to use its power to favor particular domestic companies. One way to do that would be to take China's equivalent of tax revenues and directly hand them over to the politically powerful shareholders. Yet that would be a bit too blatant. A far subtler approach is to use those yuan to buy dollars in the foreign exchange market. This increase in the yuan demand for dollars naturally raises the yuan-price of dollars, i.e., raises the exchange rate between US and Chinese currency. This makes it easier for Chinese exporters to ship goods to the United States, and harder for American exporters to sell goods to the Chinese...
|
Inflation is a serious problem in this country, and in another Mises article, Sean Corrigan reports:
|
Quote:
http://www.mises.org/story/2438
...Indeed, the real sign of our debased times is that the US Mint was concerned that its more enterprising citizens would find it profitable to extract the copper and nickel content of the coins (which now cost the Mint 75% more to make than their face value represents)
|
In order to compete with Chinese goods, the US government would have to print so much money that the dollar would be worthless, which would reduce our buying power, heavily inflate prices, and seriously piss off the holders of dollar bonds. By artificially keeping the Yuan lower than the dollar, the Chinese are artificially keeping the US dollar a strong currency in tandem with oil exporters who also purchase large amounts of dollars.
|
Originally Posted by Murphy
...Rush Limbaugh uses the term "Chi-Coms" to refer to the ruling class in China. Fox News regularly runs stories on the threat from China. There are plenty of conspiracy theories that the Chinese government is consciously running huge trade surpluses in order to "attack" the dollar at some future point and destroy our economy. For his part, Stelzer too seems worried that the Chinese "have been accumulating dollars at the rate of $200 billion per year"; it's just that Stelzer warns his readers that those wily Arab countries are stockpiling about $500 billion per year...
|
Murphy then goes on to explain that a possible motive for China's accumulation of dollars is to maintain the Yuan a strong currency and facilitate China's economic growth, while at the same time maintaining The Party's hegemony.
|
Quote:
...How best to accomplish this? Well, the best course would be to put the yuan on a rock solid 100% gold standard with guaranteed convertibility at any time. But as every ruler knows, that would be a bit too extreme; it's hard to exercise arbitrary power when your hands are tied by gold production. A more moderate aim would be to tie the yuan to something that is relatively stable and known the world over: the US dollar. By convincing the investors of the world that the Chinese yuan can always be converted to US dollars at a predictable exchange rate, the (relative!) success and stability of the US monetary and banking system can be imported to China...
|
So China is distributing its wealth to benefit the economic elite (exporters) by using funds extracted from all Chinese to strengthen our dollar and sell us cheap goods. But what about the trade defecit?
|
Originally Posted by Murphy
Of course, I don't know for sure that the desire to insource Greenspan's and now Bernanke's policies is really the motivation for the Chinese government's behavior. But what we can say for certain is that the only way China (or other foreigners) can be net investors in the United States, is if the US is at the same time a net importer from them.
This is quite simple, really. If the Chinese government wants to accumulate a stockpile of short-term dollar assets (such as US Treasury bills), what must it do? It must first use its yuan to enter the foreign exchange markets to buy US dollars, and then use those dollars to acquire the bonds from Uncle Sam.
Now what happens to all the yuan supplied to the foreign exchange market? People can either hold them as cash (unlikely), or use them to buy yuan-denominated assets or merchandise from China. If, on the whole, there is more capital investment flowing into the United States from China than vice versa, then simple accounting dictates that there are more goods and services flowing into the US from China than vice versa. In short, if we have a capital surplus with China then we must at the same time have a trade deficit with China.
If appeal to accounting tautologies doesn't reassure the reader, perhaps the following chart will.
As the figure makes clear, the US trade balance generally "improves" during recessions and drops during periods of rapid growth. This is because Americans spend less on goods and services during bad times, and this includes their expenditures on foreign producers. So not only is the trade deficit no cause for worry; if anything it is a sign of economic strength! |
Trade Defecits are no bane to economically developed countries. The idea that being a net importer is disasterous to a national economy is a dinosaur from the realm of Mercantilism, when countries like Great Britain presumed that the world had a finite amount of wealth, and used imperical policies to forcefully extract raw materials from the world in order to benefit the mother country. Wealth is created, not extracted, and while Britain maintained its empire by being a global exporter, we do it by being a global importer. Countries like china are sending their goods and materials
to us in order to acquire wealth that we produce through labor instead of encouraging their own domestic markets.
|
Quote:
Exports Needed For Jobs?
Let us return to Mr. Stelzer. He tells us that Paulson's mission is impossible because:
"[T]he Chinese regime's overwhelming priority is to stay in power. That means providing jobs for the 300 million farmers expected to move to the cities in the next 20 years, which in turn means the government will under no circumstances allow the yuan to rise to a level that cuts sharply into exports."
Now in fairness, maybe Stelzer knows that this logic is nuts, and merely thinks the Chinese rulers believe it. However, I don't think that's the case; it seems Stelzer believes Paulson was trying to convince the Chinese government to sell out their own workers and side with US exporters.
We free marketeers get exhausted saying it so many times, but here goes: Foreign imports do not destroy jobs on net. Government interventions against international trade do not promote employment. Everyone can get hired in a free labor market, so there is no issue of "providing jobs." Further, if the labor market isn't free — and it's certainly not in China — then the best way to promote employment is to get out of the way and allow everyone to be as productive as possible. Manipulating the yuan's exchange rate does no such thing.
Indeed, it seems that Stelzer has it exactly backwards here as well. He seems to think that China's implicit subsidies to its exporters hurt the United States and help China. On the contrary, on average they help Americans and hurt the Chinese.
If this seems shocking, change the scenario ever so slightly. Suppose the Chinese government used its yuan (derived from taxes on its people or slave labor) not to buy US Treasury bills, but instead to directly buy products from Chinese exporters. Then, it decided to send these TVs, radios, etc. as free gifts to US consumers. Would Stelzer claim that this tax-and-spend policy created jobs in China? (Well, maybe he would.) Would Stelzer claim that receiving free TVs makes Americans poorer?
|
But what of hate-mongering? In his Econospinning blog, Gene Epstein writes on Lou Dobbs:
|
Quote:
http://econospinning.com/site/?p=39
Dobbs’ new book also answers another question: why he and other newscasters habitually refer to China as “communist” China — as in a Dec. 8, 2005, broadcast, in which he announced, “Still ahead…communist China planning a massive new assault on American consumers.”
The precise nature of this fearsome attack: The Chinese government had brought about 100 companies to a New York City trade fair to market their goods.
The term “communist,” together with phrases like “massive new assault,” is clearly meant to allude to a time when China was in the enemy camp — where Dobbs presumably hopes to place it once again. Yet, in response to what he calls “frequent” questions about his word choice in his broadcasts, he writes, “China is the world’s largest communist country. Its government is communist. President Hu and Premier Wen Jiabao are not elected officials. China is not a democracy; it is a communist state. The real question is, why do other news organizations and our political leaders ignore that reality?”
That circular statement deserves to be aired on Comedy Central, perhaps on The Colbert Report. Otherwise, to refute Dobbs can feel like striking a fly with a mallet. While China is hardly anyone’s model of a free country, that’s not the point. It’s just a little harder to instill fear in television audiences with talk of “communist” India or “communist” Indonesia — two countries, by the way, that the 2006 Index of Economic Freedom, released jointly by The Wall Street Journal and Heritage Foundation, cited as less free economically than post-Mao China. Besides, if “communist” means the absence of democratic elections — which it does not — then more than half the world’s nations must also be communist.
Sure, outsourcing has its drawbacks, but it’s time to call Dobbs’ economic demagogy what it is.
|
Talking heads are attempting to place China in the "enemy camp" as a means in the case of the Weekly Standard and Fox News, to sensationalize their message to instill fear in their viewers and readers to foment a Neoconservative agenda for American hegemony and increase their reader and viewership, whereas in Dobb's case, it's to play off of the fears of working class Americans concerning Chinese exporters. "Working Class" people being the very ones he's attempting to sell his book to.
The Chinese haven't been our enemy since the Nixon administration. In fact, they're harming their own nation as a whole by artificially strengthening the American dollar and benefiting American consumers with cheaper goods, in order to benefit their minority economic elites (Chinese exporters) and maintain their power as a police state.
As far as I'm concerned, men like Dobbs and Neoconservative writers can sit 'n spin, because they're fomenting bigoted and uninformed opinions in the already woefully ignorant American public.
Jam it back in, in the dark.
85239
35211
Bradylama 
