U.S.: China Not Manipulating Currency Like They’re Not Manipulating U.S. Policy

You might recall that I referenced an article from Asia Times Online that sheds some light on the nature of Sino-American economic relations and their influence on the the exercise of First Amendment rights in this country. Stephen McArthur at Orwell's Grave has done some terrific follow-up work, blogging about the dangers of China's unchecked economic growth generally to the U.S. economy and following-up on the Asia Times story in particular.

Call me paranoid, but I don't think the Chinese are going to limit themselves to trying to sway our Taiwan policy by using our $1.5B dollar-a-day debt habit against us. The fact is, China owns roughly half of the total U.S. foreign debt – a staggering $1.1 trillion dollars as of January, 2005. It's not hyperbole to say that God only knows what that figure is today; remember that in the smirking chimp's world $9B constitutes an accounting error.

What's the source of my unbridled pessimism about China and how it will wield its financial hammer against the United States of America? This article.

Apparently the United States has concluded that China, in defiance of all logic, is not manipulating its currency to increase its already enormous human capital advantage over U.S. manufacturers. As recently as last month Asia Times Online quoted Standard Chartered Bank senior economist Stephen Green as follows:

"It's true that China is manipulating its currency, but it's also true it's manipulating it in order to appreciate against the dollar. If it was following the basket [currencies such as the dollar, euro and yen used as a reference point] in recent weeks, it would actually be depreciating against the dollar," Green said.

The article goes on to explain:

When China initially revalued its currency upward last July, it committed itself to valuing the yuan against a basket of currencies. However, since the composition of the basket was never precisely defined, at least publicly, it is extremely difficult for outsiders to assess whether China is actually following the policy or not.

Note the timing: that article ran on March 31, 2006 – just ten days after Chinese dictator Hu Jintau visited the leaker-in-chief in Washington, D.C. to talk trade, and ten days before the GAO "concluded" that China is allowing market forces to determine the value of its currency. The reason that the latest currency report to Congress could state that China doesn't technically meet the legal definition of a currency manipulator is because the law forbids depreciating currency. In short, China dodged the "currency manipulator" label because they manipulated their currency!

Why is this a bad thing? Because it allows the persistence of the status quo in Sino-American relations:

  • The Iraq fiasco will continue to be financed with what amounts to loans from China, keeping the already sheep-like American electorate from realizing the true cost of the war effort.
  • China's ability to influence U.S. foreign and domestic policy by holding our debt over our collective heads will continue to grow in proportion to the amount of U.S. debt they hold.
  • It takes some of the steam out of the Schumer-Graham import tarrifs bill, providing political cover to free-traders in both parties while depriving the progressive base of the democratic party a potent issue to rally around.
  • It provides a foreign policy figleaf for the smirk to wear.
  • It does nothing to stem the loss of manufacturing jobs in the United States, which is not only an economic issue, but a true national security issue as well.

You can put lipstick on a pig and it will still look just like Barbara Bush; you can call a Communist dictatorship that treats its citizens like cattle and makes bellicose threats about nuking Los Angeles a "strategic competitor" and it's still a bellicose Communist dictatorship.

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