This week, committees on both sides of Capitol Hill will plumb the conundrum of Chinese currency manipulation. The conundrum isn't that -- or why -- China is manipulating its currency: By undervaluing it, China is systematically able to underprice its exports, putting American (and other nations')
manufacturingconsumers and businesses that purchase China's cheap imports at a significant disadvantage. The conundrum is why the hell the United States isn't doingthinks it should do anything about it.
There are certainly plenty of senators and congressmen -- and
Main Street AmericansU.S. producers that compete with China -- who'd like to see the White House place some tariffstaxes on American consumers and businesses who purchase the underpricedlow-priced Chinese imports. If the administration doesn't act, Congress may just consider mandating some tariffspunitive taxes against American consumers and businesses on its own.
"The Chinese sell us mountains of cheap goods, then turn around and invest most of the proceeds (equivalent to our trade deficit with China) in U.S. Treasury securities. We get the goods, and we get to keep the money. Then we devalue the dollar, and they lose on their investment. Why we would want them to stop doing this is beyond me, though if I were a Chinese citizen, I would be furious with my government for directing such massive quantities of my country's export earnings to Treasuries.
The central bank of China has no need to further increase its already-massive reserves; instead, the government should be relaxing capital constraints, allowing Chinese citizens more freedom to save and invest abroad in the types of vehicles with which they feel most comfortable. China's workforce is aging daily, and like Japan a few decades ago, China's economy cannot accommodate all the savings of the Chinese people—they are essentially forced to save overseas.
Contrary to what you read in the press—which mistakenly believes that our large trade deficit with China is something we need to worry about—China is the one that needs to worry, not us."
~ Scott Grannis