We're dead meat if China does this...

[lester1/2jr]

CHina has been devaluing it's currency to keep up (or rather, down) with ours.  thus, they have been experiencing the same price increases and other negative inflationary effets there, albeit with about 10 times the economic growth rate. 

Unfortunately for us, the country that has been paying them with more or less worthless ious for years now, were china to re-evaluate it's damaging monetary policy it would likely cause some serious panic here, as the author illustrates.

China's Simple Solution

note:  if you are from the "america can't possibly lose" school that says chinas economy is 100% dependent on ours think again.  They have been unloading their dollars at will and have a hungry, proud country of a billion people. 

there's more to China than just cheap manufacturing as we will no doubt see this summer at the olympics.

[AndyC]

I can only find two things wrong with that article. The vibrant economy in China is driven by exports, and a higher-valued currency is only going to mean their customers abroad won't be getting the same value for their money. It's easy to say the Chinese have enough people to make up for that, but a lot of them are poorer and live in more primitive conditions than we do. And the ones with disposable income still aren't going to consume at the rate of the average Wal-Mart customer. Their policy is sound because their undervalued currency is driving their economic growth, and that is a far scarier proposition.

I see something similar with the Canadian dollar being so strong. When it was at about 70 cents US, our exports did better, and so did tourism, while there was something of a deterrant against shopping across the border. When our dollar is strong, Americans are less likely to buy from us and we are more likely to buy from them. Money flowing one way across the border can just as easily flow the other way.

And that illustrates the other thing that is completely out to lunch. If China strengthened its currency and its manufacturers started selling more of their goods at home, that would benefit the rest of the world. More people buying is always good, and when workers are buying the fruits of their own labours, it means more jobs, more production, more consumption and so on. And it might just allow for the return of some lost manufacturing jobs on this side of the pacific. But above all, when the Chinese workers taste a little more of the good life, they will demand more still, and gradually close that gap in rights and wages that gives them such an advantage. In the end, everybody's better off.

That is the problem facing the Chinese government. The same progress that is building their economy and scaring Americans is also transforming their country. But somebody trying to scare the gullible into buying his book probably wouldn't be concerned with that.

People are far too obsessed with economic doom and gloom. Economies grow and rest continuously. They can't grow all the time. If people just went about their business as usual, and stopped obsessing about this stuff, the ups and downs would be far less dramatic.

[CheezeFlixz]

The USA import nearly $250 BILLION from China every year and the US is the largest customer China has, in fact the USA nearly imports more than the next 9 countries combined. And while I'm not loving these high gas prices, a weak dollar enables more money to flow into the US and less out. As AndyC noted, a increased value in the Canadian Dollar allows our friends up north to buy more goods and services made down south, As a side note the USA is Canada's largest customer too and a weak dollar would have negative effects on the Canadian economy as well, it might become cheaper to build those cars in Detroit than in Canada. I've already seen a increase in the price of Canadian beer, so as a result I buy less foreign beer and more domestic, not that I buy that much anyway.
So a weak dollar will hit China as hard as well and have a ripple effect all over the globe. If China should value the Yuan correctly it would mainly hurt companies like Wal-Mart and the Wal-Mart shopper, currently China's biggest single customer and those rolling back the prices would roll up. As for china wanting to increase domestic consumption the Chinese consumer is not going to magically change in to the super consumer that American are over night, so the effects would have to place over a long period of time. While the buying power here at home would decease with a increased value of the Yuan, this would not necessarily be a bad thing in the big picture. Many Americans are addicted to consumption they shop to shop and own to own, often acquiring STUFF they don't really need thus digging them deeper into debt as the middle name of most Americans is "charge it". Decreased consumption could lead to increased equity, liquidity and reduction in personal debt. As a added benefit current cheap overseas labor would longer be so cheap and those jobs would be more readily affordable at home, bring jobs home and creating economic growth in the US. These would take some time, but in time it would be possible. There would be hard time and tight times, but in the long run it would be beneficial domestically as the economy shifts from predominately service and retail and manufacturing and production. 
It would be hard on many people for a time, but people either learn to adapt or become victims of the system. Personally I buy as little goods as possible made in China, it's nearly impossible to not consume anything, but you can great reduce Chinese goods in your life with a little effort. I prefer quality, something not found in most Chinese products. I refer you to the endless list of recalls in the last year.   

[Inyarear]

You know, I just happened to think of an article on this very subject that P.J. O'Rourke wrote back in 2006. His point, as I recall, was that having goods and services is more worthwhile than having money. This was in response to a lot of scare-mongering at the time about our "trade deficit" with China.

History bears out his point: back when Spain was importing shiploads of gold from the Americas, the Spanish spent their windfall like crazy buying stuff from their fellow Europeans, and the Europeans in turn spent the gold importing silk and spices from China. The Europeans ended up better clothed and fed than ever before, while the gold mostly ended up on palace walls and temple roofs in China and a great many Chinese people starved.

Now the Chinese have been accepting lots of pretty pictures of Benjamin Franklin on paper in exchange for all their goods and services, such that we've got more of their goods piled up in our houses here in the U.S.A. than ever before while most of them are still living in desperate poverty. (That's when they aren't starving to death in desperate poverty.) I'm not sure having the most toys makes us the winner, but not having all those toys for themselves definitely makes the Chinese the losers if our dollar goes bust on them. Having our dollar collapse would indeed be a very nasty shock to our economy, but those of us holding the goods won't be hurting half so much as whoever's holding the money. If the ones holding our dollar are not the Chinese, then whoever bought those dollar stockpiles from them is the one getting wedgied right about now.

P.J. O'Rourke reminds us that this is what happened to Japan: we got their gadgets and they got our money. Then the Japanese invested heavily in our real estate and lost their shirts when the real estate bubble collapsed. I don't know whether China has blundered as badly as Japan did, but I do know that a lot of the investors left holding the bag during this latest collapse of our subprime mortgage market have been Asian. If those overvalued mortgage bundles are where the Chinese have been dumping our dollars, that's another wedgie for them.

About the only danger to us I see in this whole tragicomic arrangement is that if China keeps getting screwed this way, all those proud and hungry people might just decide they want to take back all those goods they sold us. Since we won't be giving those things back voluntarily, they'd pretty much have to invade us to do that. Since we and they both have nukes, I don't see any way either of us could win that war.

[RCMerchant]

"The Eagle and the Bear will rise up and do battle with the giant" or someting to that effect...Nostradamus. That would be us and Russia,I guess. But what did that shmuck know? He and Orsen Welles said the world would end by 1999. Prince too. Meh.   

[lester1/2jr]

there are reasons why they should not strengthen their currency, but there are reasons they should as well and states do not always act logically.

the bottom line is they have the freedom to do this and if they did we would have to make some big changes

[AndyC]

They have less freedom than you might think. Strengthening their currency would weaken the exports they currently rely on and strengthen the population they currently oppress - two things the Chinese government doesn't want. And if they decided to do it anyway, they would have at least as many adjustments to make as anyone else.

[lester1/2jr]

the picture I get from people I have been there is not like that.  they have taken to capitalism like fanatics and are less concerned about fre spech and so forth.  when you get 10% groth year after year, you don't want to mess with a winning formula.  sure, it'd be better if there was less centralized power there, but that doesn't mean they can't be stiff competition, particularly where they are less incllined to military actions than we are, a massive perpetual drain of our resources.  there one child or whatever it is policy probably has something to do with that, and just general prudency.

don't underestimate these guys.  if demoicracy made nations strong India would be kciking chinas ass and they aren't

[AndyC]

That's the first point you seem to be missing: what the Chinese government is doing now is a winning formula from their point of view, and we can't deny it's working well for them. They have no reason to change their monetary policy. Nobody here is underestimating them, but I'm honestly not afraid of them either.

The second point, you just have backward. It's not democracy that leads to success (and India is a poor example anyway), but rather success that breeds democracy. Well-fed people have more time and energy to worry about things like rights and freedoms. China cannot continue to grow as it is without being transformed by that growth. People seem to assume that China the economic powerhouse of the 21st century would remain ideologically the same as present-day China, which is still caught in something of a time warp. China's going to change. Heck, their hosting of the Olympics shows how much the respect and admiration of the rest of the world means to them.

[lester1/2jr]

well, okay, assuming your model is right how does that make it any better for us?

if they embrace our version of democracy they will still kick our ass. 

they havea billion people who are more inclined to save and who are less inclined to go to war.  they are building a great nation. 


I think yo uare being a little naive with this human spirit aching for freedom stuff. our industrial revolution had   child labor,  monopolies,  horrible environmental conditions, etc.  but it built this country.  you don't have to follow the rules to win

[RCMerchant]

well, okay, assuming your model is right how does that make it any better for us?

if they embrace our version of democracy they will still kick our ass. 

they havea billion people who are more inclined to save and who are less inclined to go to war.  they are building a great nation. 


I think yo uare being a little naive with this human spirit aching for freedom stuff. our industrial revolution had   child labor,  monopolies,  horrible environmental conditions, etc.  but it built this country.  you don't have to follow the rules to win

We also embraced slave labor,genocide (the Indian nations), the seperation of races,the use of Atomic weapons and the stockpiling of them. We just don't want other people doing it. Because we're "beyond that" now. It IS hypocritacal and BS. But I guess we should expect the world to change for OUR benifiet...and f#ck them. We are not the only people on this planet.

[AndyC]

Who said anything about a "human spirit aching for freedom" or democracy for that matter? You seem to be the one stuck thinking in those terms. I'm talking about self-interest. Am I naive to put my faith in human pockets aching to be lined? The Chinese start earning money, driving their own economy, that gives them power. What follows is what followed the injustices of the industrial revolution in the west - labour unions, labour laws, higher wages. Not to mention that the Chinese economy will gradually diversify, as sectors other than manufacturing grow to fill the market created by all that new income.

The rest of the world benefits from a more level playing field, and the fact that hundreds of millions living in poverty might well turn into hundreds of millions of potential customers. It's also good news because people who aren't concerned about where their next meal is coming from can then devote themselves to worrying about social justice, the environment and all that good stuff people over here have the luxury of worrying about. You'll also likely see that whatever leftover communist ideology there is in the government will go out the window in the face of newfound affluence.

Of course, we must also consider the area in which you're being a little naive. That is the idea that national boundaries mean much in the business world these days. Chinese have money invested around the world. So do Americans. Most good portfolios are spread over a number of countries. The money made in one country can just as easily find its way into the hands of investors in another.

I don't doubt the sincerity of your beliefs Lester, but it seems like you start with the conclusion (such as, China is a threat) then look for information to support it. And even then, you post the opinion of an economic doomsayer with a book for sale. Again, who's being naive?

[Inyarear]

there are reasons why they should not strengthen their currency, but there are reasons they should as well and states do not always act logically.

the bottom line is they have the freedom to do this and if they did we would have to make some big changes

Everything a government does tends to lead to big changes, but what kind of big changes? Obviously, if a stronger Yuan leads to higher prices, Wal-Mart will either have to mark up its prices on Chinese imports or stop buying them altogether. (That should stop the whining about Wal-Mart although it won't, of course.) If the prices don't rise, then we continue to get cheap (maybe cheap crap) products from China at Wal-Mart.

I should point out that no one is holding a gun to anyone's head and ordering him to buy Chinese products at Wal-Mart, so what's the big loss for us either way? If those products are crap, we should be happy to see them vanish from the shelves as they're priced out of our market. If they're good products at an excellent price, then we should be happy to have found ourselves such a bargain. If they're cheap crap at a low price, we should be content that the free market has set the price where it belongs. We should also be content that the market has set prices accordingly if they're good products but rather expensive.

In short, where's the big loss? To hear all the complaining against Wal-Mart I've seen on this board, I'd have thought everyone should be happy to hear that one of that company's major sources of low-priced products produced by cheap labor might finally dry up. I'd probably count it as a loss; the products that aren't crap have been an absolute bargain. Still, to quote Sheryl Crow:

If it makes you happy,
It can't be that bad.
If it makes you happy,
Then why the hell are you so sad?

[lester1/2jr]

We also embraced slave labor,genocide (the Indian nations), the seperation of races,the use of Atomic weapons and the stockpiling of them. We just don't want other people doing it.

exactly.  and god didn't rain thunderbolts down on us.  the cotton trade built wall street. 

I'm not at all saying it was right, I'm saying that china is not subject to our morality.

The Chinese start earning money, driving their own economy, that gives them power. What follows is what followed the injustices of the industrial revolution in the west - labour unions, labour laws, higher wages

labor unions in a communist country?  that'd be a little redundent.  and i see no indication they are going to do any of those things.  But if they raised the value of the currency the people would be able to buy more with what they make.

there is not some law of human nature that when countries experience growth they fall in to a pattern that is just their destiny.  we unfortunately embraced big government and overseas empire.  we didn't have to

you post the opinion of an economic doomsayer with a book for sale

he's mad a s**tload of money shorting the dollar and  buying brazilian and chinese, for himself and many others.  it's not just talk.

[AndyC]

labor unions in a communist country?  that'd be a little redundent.

Ever heard of Solidarity?

You really have no idea what you're talking about, and I'm finished with this thread.