I wrote yesterday about the recent Chinese veiled threat to dump its dollar holdings if the U.S. raises tariffs in hopes of coercing them to let the Yuan rise against the dollar. Today I had the opportunity to pick the brain of an expert on the topic, Brad Setser, Chief Economist at RGE Monitor and former acting director of the Office of International Monetary and Financial Policy at the U.S. Treasury.My first question to him was, is this a credible threat? Setser didn't believe so, because it would represent a huge shift in China policy. The Chinese government, he explained, has shown a consistent bias toward supporting the country's exports, even at the cost of holding onto dollars as their value drops against other world currency. In fact, China continues to bolster its dollar holdings, adding $350-400 billion this year alone.
Setser went on to explain that, in his opinion, the Yuan was currently undervalued against the dollar by approximately 30%. If such an imbalance were abruptly corrected it would dramatically disrupt their export market.
He went on to say that China is in effect swallowing huge losses by holding dollars in order to support their exports, but the current regime has not indicated any likelihood to change that position.
However, he cautions, tensions between the two countries are growing, as the Chinese government takes umbrage at the growing movement in the U.S. to address the trade imbalance with legislation.
My take from this discussion: a change in the status quo is not in the offing, but the trade discussions in Congress are being watched carefully by the Chinese government. In the political season we are entering, pro-tariff campaign rhetoric could bring about more threats of reprisal.
Reader Comments (Page 1 of 1)
8-09-2007 @ 8:20PM
theTmanxkl said...
The Chinese sell their dollars for yuan, then adjust their yuan higher as the Americans want. Their yuan are now worth more, the united states goes into a depression, the chinese build up their nation a little more, they teach the capitalists a fiercesome lesson of mega orders both within and without their nation,and then they just blame us for having demanded such a stupid thing in the first place. I wouldn't be surprised if they then filed a lawsuit against us for having "mishandled" their investments.
I say be careful what you wish for. This has been our problem now for twenty years since the collapse of our other "enemy" the soviet union(who is now booming-now that they got rid of all those "problem" nations that they had to support. now we support them...) Told you careful what you wish for....
8-09-2007 @ 8:44PM
JEFFREY said...
CHINA,THE US IS SUPPORTED BY CHINA,BY THERE BUYING TREASURIES,TO SUPPORT OUR DEBT.ANY,FRICTION,BETWEEN BOTH OF US,THE US,LOSES,DONT FORGET.
8-09-2007 @ 9:59PM
Dean Adams said...
This is where the North American Union comes in. We are so far in debt to Communist China, that we have no choice but to merge with (or borrow if you prefer) Canada, and Mexico. The N.A.U. is necessary (in our leader's mind's- not mine) for three reasons: 1. More citizens under the "umbrella" of a new "union" (forcing China to re-think plans for invasion). 2. Expanded maunfacturing potential- therefore a lessend need to trade with China, and 3. Expanded land mass to survive a possible nuclear war with China. If the three countries join together, we can start maunfacturing our own goods again, and China would have to re-think their nuclear option. You can find writings from Chinese military generals who actually believe that China can win a nuclear exchange with the Unites States, simply based on China's land mass, and number of citizens. It would be much harder to bomb, invade, and conquer an entire continent, than the U.S. alone.
The U.S. is finished. The N.A.U. will be born in your childeren's, or grandchildren's lifetime. When you get to the very bottom of things, you can blame the American consumer for the death of our nation. We want to go to WalMart to buy cheap goods. Well, fine, you saved money, and you've filled your house with Chinese goods, but you gave away your country at the same time. This is what greed gets you. This is what greedy treasonus capatilism gets you. It's our own fault. Have a nice day.
But, there is a way to put a stop to this. If every American were to start buying everything used- from your clothes, to your electronics, to your car, and stop giving your money to China, maybe we can send the message that we've made a great mistake, but we are going to start looking out for ourselves again. Obviously there are going to be things that you can't buy used, but if you really try, you can buy only used products, or products that are not made in Communits countries. Instead of going to Target to buy a $2.99 spatula that was made in China, you can go to your local thrift store, and buy one for 50 cents. You got your spatula, and your money stayed in the United States, and didn't go to China!
In closing, the unfortunate thing is the N.A.U. will be imposed on us. The average American, Canadian, and Mexican will not approve such a thing. So, it will be imposed on us through fear. A nuclear bomb going off in a major city will scare the crap out of everyone. It will be then that the president will stand up and proclaim that "For reasons of security, and prosperity, North America must join together, and become one nation."
One nation NOT under God. Good night, fellow temporary American.
P.S. If you think I'm coming from outer space, seriously study NAFTA, the "Nafta Super Highway", CAFTA, GATT, the "Project For A New American Century", and SPP (Security and Prosperity Proclamation, or spp.gov).
8-09-2007 @ 11:09PM
alvaro said...
N.A.U. fear mongers show their innocence at every turn. They frantically cry about a 10 lane highway running North to South through the United States. I guess they have never been though Georgia. Just travel on 275 going from Florida to the North of Georgia and you'll see a 7 lane highway; what's a couple more lanes?
Very often their rhetoric is accompanied with racist fear mongering about the U.S. Southern border. No doubt some of their histeria is based on partial truths and just like "just because you're paranoid does not mean someone is not out to get you," there are legitimate concerns hidden in all the misinformation they deliver.
If the whole world starts to follow their, buy only goods made in the nation, approach, more than China, it will be the United States that will be bankrupt.
8-10-2007 @ 1:11AM
paltaquita said...
I CAN'T THINK WHY CHINA IS BOOMING. ALL I KNOW WAS THAT A LOT OF CHINESE PEOPLE MIGRATING TO ALL PARTS AROUND THE GLOBE DUE TO THEIR OWN STYLE "CROOKED" SYSTEM. MOSTLY CHINESE DOESNT LIKE THEIR OWN SYSTEM. THEY'LL NOT CORRECT DEFECTIVE THINGS UNLESS SOMEONE CAUGHT THAT THERE PRODUCTS ARE DEFECTIVE or SUB-STANDARD. JUST LIKE THOSE THINGS HAPPENING RIGHT NOW THE TOY RECALLECTION, POISONOUS PET FOOD, SEAFOOD CONTAMINATION, ETC...FOREIGN COUNTRIES LIKE U.S. and OTHERS ARE THE MAIN CONSUMERS OF THEIR PRODUCT. CHINESE PEOPLE ALONE CAN NOT MAKE THEIR OWN COUNTRY IN GOOD ECONOMIC SITUATION....."DO NOT BUY PRODUCTS THAT ARE MADE IN CHINA".....!!!!CHINA WILL JUST DRAINED U.S. DOLLARS UP TO THE LAST PENNY....DONT WAIT FOR THE WORSE THING or HEAR THE WORD " WE ARE CHECKMATE"...
8-10-2007 @ 2:25AM
Michelle said...
I find it interesting the volumes of opinions on these issues. I myself have many not unlike some of yours. I do however wonder what passing around rhetoric really does in finding a solution. I wonder if it is not time to have some sort of tea party to gain what I think we all want and hoped for in our country. I think most people want to leave our country in better order to the generations that follow us. I think diplomacy, the monetary system, morals and ethics are all broken in our society today. I truly believe in our constitution given the right folks to help carry it out. I always thought instead of going to war we should have built alliances with our neighbors and protected our boundaries first. We could have proceed from there, hopefully with more diplomacy and knowledge. Maybe it is time to have round tables in our own communities. Maybe we all need to stop being complacent and thinking these things will solve themselves. We need true leaders that can establish right from wrong and aren't afraid of being ousted by the good ol' boys. These geezers solutions don't work anymore.
8-10-2007 @ 6:49AM
Richard said...
the guy who made comments in no. 3 thought he was adam smith.
8-11-2007 @ 12:40AM
David said...
The US era ends. Long live Asia with its 4 billion population.
Whites no more dominate the world as they are now a minority. Long live Mexicans, Italians and Spanish in the US.
8-20-2007 @ 1:42PM
Moonzie said...
China doesn't mean to Threaten Dollar.
Boosting U.S. exports to China is the right step to narrow the trade gap. China exports millions of pairs of jeans, or millions of boxes toys in exchange for an airplane. If the U.S. government allows more high-tech products to be exported to China, the trade imbalance could easily be improved.
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