CNN: Currency Confrontation

Quoting fierceman

Disliked

I don't think protectionism is ever the right thing to do, unless you think the lesser loser is the winner, which is what I think they might be going for - let's collapse the whole thing and pray that China collapses further and faster than we do.

Ignored

As a standard basic truth I agree with you. I do believe there are exceptions. For example, rare earth commodities are found all over the world. However, China sold theirs at a loss for years to run everyone else out of the market and now they dominate it. Some of these are essential for several industries and the defense department in the USA. A study found that if China pulled out of the market or ran the price up it would take the USA two years to get theirs going again. We dont have a two year supply sitting around. So in this case for our own good we need to protect that industry. But as a standard rule protectionism is harmful in the vast majority of cases. In the case of China they deliberately undervalued the RMB to have a superior position in the market. They should have been forced to be an open market before they were allowed into the WTO. After the Olympics it has now become almost impossible for a foreigner to open a business in China and those that do are forced to accept a Chinese partner who soon strips the company of the investments and disappears. I fully understand the logic behind the bill and what it is trying to do but like I said way too late.

nanningbob

Oct 9, 2011 2:18am

"The argument for protectionism always seems to fall flat on its face in one way or another, if you consider its wide reaching consequences." Hey I am not going to argue for protectionism, just gave an example where it might be used. The rare earths was something that was noticed and then a solution applied before the event could happen. So we are on the same side of the coin here.

nanningbob

Oct 9, 2011 4:48pm

Quoting webart

Disliked

OMG !

For years industry has been outsourced to China until there almost none left in western countries. Outsourced for the cheap (sometimes) slave labour and cheap poluting industries producing low quality nasty crap that dosn't last. Not even to mention the fact that China's buying of treasuries is what has helped keep Americia (and the world) from a complete depression (at least so far).

So many have been critical (me included) of that situation, of becoming reliant on another country. Then we screw up the ecomony completely, through...

Ignored

I think most of us here feel the same. This is a bad bill.

Scrat

Oct 10, 2011 12:19am

let's not forget China is not alone in this. what, do you think they just came out of the closet a few years ago and started making cheap products? no. they were encouraged to do that (you need technology to do a lot of things, and you can't build that overnight; you either steal it, or you buy it or it is given to you). and then, someone bought those products and DISTRIBUTED them. for profit, of course. i'm not saying China is not guilty, but a big share of guilt - along with the king' share of the profits, of course - belongs to american capitalists that are yelling now 'catch the thief!'.

Scrat

Oct 10, 2011 1:41am

they are already competing with u.s. companies. do you think american politicians (same politicians that almost screwed up the budget about 2 months ago) would bother trying to pass a bill if china would not have already been considered a serious problem? it IS happening, not about to.

Oct 8, 2011 8:34pm — Edited

Quoting rchrdfrncs

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If the bill passes, then it should send the stock market down further as this will just be a tax on American Corporations.

Ignored

I agree. And I also think that the number one thing we need to be protected from is American Corporations.

The bill itself is a pretty good bill. It gives the US a number of tools to use in international trade discussions.

The China rhetoric is complete and total crap. If the US wanted to ding China for currency manipulation, they already could. They have the "China hammer", but they just don't use it.

The most troubling thing about the bill is that it redefines the threshold to action. Currently the US can act if a country "manipulates" their currency. With this new bill, it changes the threshold for action to "misaligned."

If this were the justice system, it would be like changing the standard from "innocent until proven guilty" to "guilty when you make more than I think you should". From "proof" to "opinion".

Further, this standard is non-specific to China. Ten years from now they could decide that although the NFTA was a good idea, the Canadian currency just wasn't at the right price.

Oct 8, 2011 10:40pm

Fierceman,

The US can unilaterally pose a variety of sanctions on China if it can "prove" that China is manipulating its currency. And man, there is a lot of proof. What is lacking is will. US multinationals make a lot of money by manufacturing in China and selling in the US and Europe.

Read one of the earlier articles in the news section. It was just a few days ago. I'll see if I can find it for you.

Oct 8, 2011 10:51pm — Edited

Quoting rchrdfrncs

Disliked

If the bill passes, then it should send the stock market down further as this will just be a tax on American Corporations.

Ignored

This bill is designed to do one thing...lower the USD to make US goods more competitive.

So, if it drives down the stock market because it is a defacto stealth tax, it should drive up the USD. Basic risk on/risk off. And it will create more uncertainty in an uncertain market and so drive up the USD further. Basic risk on/off 2.0.

And of course, this will affect all markets that the US deals with, not just China.

LMAO

Sorry, I don't have all my thoughts at the same time. Like the market practices price discovery, I practice thought discovery.

Oct 8, 2011 11:57pm

Fierceman,

All wars (trade and otherwise) suck for the economies of those that engage in them. There seems to be some confusion about this central fact for two reasons. First, the US made out very well in WW2. Second, wars solve unemployment through enlistment and death.

The US didn't actually make out well in WW2. At least not after they started fighting and stopped selling to both sides. They made bombs, the Japanese made houses, and at the end of the exchange the Japanese no longer had houses and we no longer had our bombs. The only multiplier that works in war is a negative, destructive multiplier.

The US made out well with WW2 not because they were better off, but because all the other major powers of the world were so much worse off. Anybody can win an arm-wrestling competition by cutting off one of their arms... provided they cut off both arms of the competition before they start.

Oct 9, 2011 12:09am

The problem with wars is that there are winners and losers. And in all wars, the ultimate trump card is the supply line.

Chinese leaders have either an engineering background, a military background, or both. American leaders are lawyers or jocks. And it shows. And while this is a generalization, the Chinese leaders generally know how to build a house, and how to blow it up. American leaders don't, although they do have experts to implement their flawed decisions.

Mostly I argue for the Chinese. Over the last 40 years they have done the best job of improving the lot of their people of any nation on this planet. Of course, they had a leg up because their people were starting from such a low level -- something they helped create.

But when I argue against the Chinese, I argue variations on a theme -- Supply lines. The Chinese leaders know what they are and have secured them. Americans...I honestly believe that most American politicians dont even understand what supply lines really are and why they are important.

Oct 9, 2011 12:14am

Fierceman,

I know you know...

. But there was the soap box, and a stream of almost daily comments on how a war would kick start the global economy, and ...Up Jumped I.

I probably should have started with: Fierceman, I agree with you. And to those of you fools that think otherwise...

Apologies.

Oct 9, 2011 2:35am

Quoting fierceman

Disliked

I think American leaders do understand supply lines - that's why they are in Iraq and Afghanistan... though their approach could/should be a bit more subtle and less wasteful of both resources and lives.

Ignored

you got me... but of course, the emphasis on the supply lines of oil started back just after WW2. And Americans have done a pretty good job (criminal some might say) of securing it.

Since then the world economy has changed. Now the issue is the supply of parts that make the American economy go round.

If China and America get in a trade war they will both enjoy a continued supply of gas...but America will not be able to build cars to consume gas until they come up with a China parts work around. And if they start making their parts at home, they will be lock out of Asian markets and European markets because they are just too expensive.

Oct 10, 2011 1:32am

There is another interesting dynamic. I don't have the exact numbers, but I am pretty sure that most of the number of jobs that China "stole" did not really come from the US. The vast majority came from Taiwan, Hong Kong, Korea and Japan.

China and the US are the two greatest manufaturing powers in the world. In dollar value they are about equal. If you look at a profile of what industries they are in, and the type of goods they make in each industry I think you will find that they do not directly compete. They are in two different levels of technology.

But this is about to change. Already the Chinese are making inroads into the lower end of US technology. They are also working hard to compete in the "global brand" business and are have some success there. Ten years from now they will be actively competing with US companies for market share.

Oct 10, 2011 2:05am

Discounting what is happening in China, I think that the Chinese and the US are currently more complementary than competitve. There are so many different structures that it is difficult to generalize, but one very common one is that Americans make a brand, Chinese do an enourmous amount of work making a product, and they split the profits, typically 80% American, 20% Chinese. This is both Nike's model and Apple's model.

When American politicians try to "punish China" they get nailed by ...American multinationals. This will change in a big way when China does what Japan and Korea have done. But the Chinese brand still has a few more years to go.

China is a big problem, but the exact shape of this problem is a little different than most people think. And the jobs currently in China will never return to America. Even if they leave China, it will because they have moved to Vietnam or India.

Oct 8, 2011 7:44pm

Quoting nanningbob

Disliked

To me this is the right bill 10 years too late. I dont see it solving any problems now but only causing more problems. Because the exchange rate has come down and inflation has hit China the difference is not worth fighting over now.

Ignored

I don't think protectionism is ever the right thing to do, unless you think the lesser loser is the winner, which is what I think they might be going for - let's collapse the whole thing and pray that China collapses further and faster than we do.

Oct 8, 2011 11:18pm

Quoting AaronWard

Disliked

Ah, here it is:

http://www.forexfactory.com/news.php...&id=318618

Ignored

Thanks!

Quoting AaronWard

Disliked

Fierceman,

The US can unilaterally pose a variety of sanctions on China if it can "prove" that China is manipulating its currency. And man, there is a lot of proof. What is lacking is will. US multinationals make a lot of money by manufacturing in China and selling in the US and Europe.

Read one of the earlier articles in the news section. It was just a few days ago. I'll see if I can find it for you.

Ignored

That's not the hammer I was thinking of (US default) but I agree there is certainly no lack of proof that China is manipulating. On the other hand, so is the US et al. Things could get very ugly very quickly if China is singled out.

Quoting nanningbob

Disliked

As a standard basic truth I agree with you. I do believe there are exceptions. For example, rare earth commodities are found all over the world. However, China sold theirs at a loss for years to run everyone else out of the market and now they dominate it. Some of these are essential for several industries and the defense department in the USA. A study found that if China pulled out of the market or ran the price up it would take the USA two years to get theirs going again. We dont have a two year supply sitting around. So in this case for our own...

Ignored

I don't believe China controls the rare earths market unless they can withstand the enormous supply chain disruptions they would cause by disrupting the rare earths market - you can't control something that you are dependent on, and China depends on the supply of foreign made products that contain rare earths. The argument for protectionism always seems to fall flat on its face in one way or another, if you consider its wide reaching consequences.

Oct 9, 2011 12:24am

I think American leaders do understand supply lines - that's why they are in Iraq and Afghanistan... though their approach could/should be a bit more subtle and less wasteful of both resources and lives. As far as rare earth supplies are concerned, there are major operations that will be coming online in Canada, Australia and the US in the very near future (2011-2013). Japan and South Korea also have 20 year stockpiles, so I wouldn't worry about that too much at this point.

The "let's start a(nother) war to fix the economy" thinking blows my mind actually. It is so contrary to logic that I don't even know where to begin an argument against it.

mahalex

Oct 8, 2011 8:03pm

I am sure China would not bend and this bill would cause a lot of tension between 2 countries and potentially a lot of problems globally. Will this bill pass? I see Obama will use his right to veto it or the final version of the bill will be too mild to have any effect.

Scrat

Oct 8, 2011 1:56pm

if i could bet on it, i would. the bill will pass. china must be rattled as much as possible so they respond in an "unacceptable" way - just enough to get the right amount of tension.

webart

Oct 9, 2011 8:33am — Edited

OMG !

For years industry has been outsourced to China until there almost none left in western countries. Outsourced for the cheap (sometimes) slave labour and cheap poluting industries producing low quality nasty crap that dosn't last. Not even to mention the fact that China's buying of treasuries is what has helped keep Americia (and the world) from a complete depression (at least so far).

So many have been critical (me included) of that situation, of becoming reliant on another country. Then we screw up the ecomony completely, through no fault of anyone elses and all the while China is going strong and now we want to sanction THEM ? I'm not Chinese, never been there, never want to go, but I would think that any nation would be offended to have another nation tell them what to do ... OR ELSE. Criticism is one thing, but this is something else.

webart

Oct 9, 2011 7:53pm

I am in business retail, consumer electronics and I have suffered due to the migration to buying direct from China, believe me. The normal supply chain is broken, there is no quality control and virtually no local wholesalers (atleast any who can compete with direct retail from China).

I said 10 years ago that it would end up like this, but all the time the government has been encouraging the situation and doing nothing to protect local industry. I have also seen products get more flimsy, less reliable and poorly designed and not supported by manufacturers.

Put in place QC, put in place import tarriffs and yes folks you may just have to be prepared to pay a little more, for something better quality and support of local industries (it's less in the long run anyway) .. but it's too late to do that now with the economy so fragile.

Dictating China's exchange rate policy at this point is just a desperate measure and admission that the policies over the last years have been flawed with greed.

webart

Oct 9, 2011 7:59pm — Edited

Anyway this is all less to do with products from China and more to do with the deficit with China, which is why over the last few year America has been chasing a low USD policy while selling as much USD to China as they can ... now that the USD is on rise, the MASSIVE amount of US paper that China has and continues to purchase on a daily basis is the reason for this bill. A few months ago it was China who was concerned that at the low USD. If QE3 comes, the the dollar will dive again. Against that uncertainty I doubt they will want to gamble their pegged dollar.

Oct 8, 2011 10:44pm

Ah, here it is:

http://www.forexfactory.com/news.php?do=news&id=318618

rchrdfrncs

Oct 9, 2011 7:23pm

webart,

Imagine you are in business for your self. You pay a decent wage to your employees, respect your environment, obey all the laws, and conduct your affairs above board and at fair market prices competing with other in your market segment. Then someone comes along and uses illegal labor, trashes the environment, doesn't give a crap about competing fairly, and keeps two sets of books.

If even in the short term they were able to take sufficient business away from your business to the point you could not afford to keep your doors open, would you not be up in arms about the way they do business?

rchrdfrncs

Oct 9, 2011 8:10pm

I couldn't agree with you more, but I had to question the obvious. Its hard to agree with what our government is doing at this point knowing they can only make matters worse.

When WalMart started this whole exodus to China for cheaper goods, I had to really wonder what people were thinking about, and why they thought cheaper was so much better. I used to buy work shoes from a company that was part of Wolverine World Wide. Before they began manufacturing in China, the shoes would last me two years, and I would beat them to death. Once they started manufacturing in China, these same shoes wouldn't last 6 months. What was worse is they never passed the savings on to the retailers that sold the shoes or to the American public.

Oct 8, 2011 10:35pm

AW, I'm curious to know what you consider the "China hammer" that the US is not using? Thanks.

Oct 9, 2011 12:05am

Precisely, that's why I said earlier:

Quoting fierceman

Disliked

...the lesser loser is the winner...

Ignored

Still a loser though...

piptastic

Oct 8, 2011 4:34pm

Im not chinese but the way i see it, chinese business men or whoever is making those decisions are effin smart and I respect them. They do what is best for their country..I can't be mad at them for that. For a few years now we had retards making our decisions...

rchrdfrncs

Oct 8, 2011 7:30pm

If the bill passes, then it should send the stock market down further as this will just be a tax on American Corporations.

Trader#1298

Oct 9, 2011 3:14pm

@AaronWard:
Sorry, I don't have all my thoughts at the same time. Like the market practices price discovery, I practice thought discovery.
-----
Best quotable line EVER.
That should be a signature tagline.

Trader#4A83

Oct 10, 2011 1:18am