U.S. Declines to Stop China From Sending Foreign Aid to American Consumers through Low Prices
WASHINGTON -- "The Obama administration may be getting tougher with China on trade on behalf of U.S. producers seeking to reduce foreign competition, but its approach in dealing with Beijing on the thorny currency issue remains patient diplomacy, especially because China's currency policy does generate huge cost advantages for American consumers and businesses purchasing their products.
The Treasury Department, in its semiannual report Friday on exchange-rate policies, once again refrained from labeling China a currency manipulator -- an accusation that would embarrass Beijing and trigger negotiations and possibly even lead to U.S. sanctions that would raise prices for American consumers and businesses purchasing Chinese imports.
The Treasury report made plain that U.S. officials believe that China’s currency, the yuan, remains “significantly undervalued,” saving Americans billions of dollars annually. An artificially cheaper yuan gives
MP: This is a good time to invoke French economist Frederic Bastiat, and thank China for its currency policy that saves American consumers billions of dollars every year, and in the process raises our standard of living:
"Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."
Thank you poor citizens of China, on behalf of rich American consumers, for the generosity of your government. We appreciate the transfer of wealth that results from your currency policy, from a relatively poor country to the consumers of an advanced, rich country. It's really not necessary, but cost-conscious American consumers will gladly accept the foreign aid you send us by keeping our currency overvalued, and in the process, your products undervalued. Thank you for the "everyday low prices" for products "Made in China."
Thank you poor citizens of China, on behalf of rich American consumers, for the generosity of your government. We appreciate the transfer of wealth that results from your currency policy, from a relatively poor country to the consumers of an advanced, rich country. It's really not necessary, but cost-conscious American consumers will gladly accept the foreign aid you send us by keeping our currency overvalued, and in the process, your products undervalued. Thank you for the "everyday low prices" for products "Made in China."
21 Comments:
It is difficult to understand why China is subsidizing the US by using their resources to deliver inexpensive goods to us, even less expensive then a free market in China would deliver. The first thought is that China must be attacking us in some way. In fact, China's government is taxing its own people, and we are getting a side benefit.
The Chinese leadership has totalitarian control. They are arranging profits for themselves at the expense of their population in general. This is similar to the US government arranging profits for politicians and crony capitalists at the expense of the US population in general.
The Chinese government operates its entire export industry. The Chinese leadership can arrange a steady flow of exports by making them somewhat cheaper than they would otherwise be. They can skim value from this flow more easily than they can raise internal taxes. This skimming is hidden, while taxes are obvious.
So, should US consumers hurt themselves and the Chinese by boycotting, banning, or imposing tariffs on Chinese goods? The practical argument is that this is very hard to do. These imports benefit consumers, after all.
The moral argument is not clear. The Chinese people are getting an unfavorable deal, but a much better one than if they exported less. Their work is becoming more valuable to their leaders and to themselves, and this gives them more power in Chinese society.
China's government is acting just like the US government. I think our US leadership subsidizes companies, taxes imports, and subsidizes exports because it can skim campaign contributions from the companies which benefit, although the general public suffers. Skimming also shows up in US government "investments" like Solyndra. Government wants to arrange a steady flow of "investment" into companies owned by cronies, despite the overall losses from doing this.
Both the US and Chinese governments are intent on skimming value from their populations. It is an odd side effect that each government is willing to help other countries, if necessary, to establish and maintain the skim.
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China is benefiting the US through misguided beliefs, just like the US benefits OPEC through misguided beliefs..
there's some irony here. We're lauding the low prices that normally come from free market dynamics but instead are coming from totalitarianism.
The libertarian types should be hopping mad that a nasty oppressive govt is ALSO 'interfering' with free market principles, eh?
de-facto slave labor is apparently ok as a free market idea?
there's some irony here. We're lauding the low prices that normally come from free market dynamics but instead are coming from totalitarianism.
The libertarian types should be hopping mad that a nasty oppressive govt is ALSO 'interfering' with free market principles, eh?
Well, that's not exactly what's going on here.
Dr. Perry is refuting the argument that Chinese subsidies hurt the American consumer. There is no free market argument going on here (save for an anti-tariff one).
The argument isn't that this is a free market. The argument is that this does not hurt American buyers.
Jon Murphy: The argument isn't that this is a free market. The argument is that this does not hurt American buyers.
It undermines American producers and subverts agreed trade rules.
" refuting the argument that Chinese subsidies hurt the American consumer"
this is not a 'free market' issue?
what if the US ..ALSO subsidized the items being imported such that the items made in this country were CHEAPER than the imports?
We are essentially benefiting from govt subsidies right?
and the Chinese workers themselves - their "rights" are being harmed by being forced to work at less than market prices for what they're producing, right?
Why should the US being a willingly collaborator in that kind of thing?
in sort of a convoluted way, one could make the case that Chinese laborers are having part of their paychecks "seized" via lower than market wages so that the Chinese Govt can then take the profits and buy U.S. Treasury notes and own our debt?
We fret about our "balance of payments" and energy dependence on oil from the middle east and yet are we not essentially doing a very similar thing with China - willingly making ourselves dependent on another country who then ends up owning our debt?
wouldn't it be better for us to spend our money to buy down our debt that would then deny China the ability to abuse their workers and use their ill-gained profits to own our debt?
and in the process give our own workers jobs (rather than unemployment checks) that would pay taxes and help pay down our debt?
what about that?
The libertarian types should be hopping mad that a nasty oppressive govt is ALSO 'interfering' with free market principles, eh?
All fiat currencies are manipulated and the USD is the most manipulated of all. This is why libertarians call for the private creation of money and credit. But given the situation that we live in adding another layer of tariffs would make things worse.
"It undermines American producers and subverts agreed trade rules"...
Gee zach I don't know how valid that line of thinking is in the real world...
It could just as easily be argued that the rules laid down in these supposed treaties were put there by the clueless in order to protect the incompetent...
Acknowledge this: Ubiquitous Intellectual Property theft, forced joint ventures, state and local control of almost all corporations and complex, ever evolving non-tariff barriers on U.S. produced goods and services is standard operating procedure...
but accept the party-line of consumer "foreign aid"...
Because you must know this:
the trillions of dollars in the pockets of state and local government functionaries will return to the U.S. -- as purchases of goods and services that would have been otherwise been freely "acquired"....
so, waiting, waiting, waiting....
for free exchange of goods and services...
still wating, waiting, waiting...
"so, waiting, waiting, waiting....
for free exchange of goods and services...
still wating, waiting, waiting"...
Consider NAFTA buddy, some parts of that dog & pony show worked out just fine (but it took time) and some didn't...
Maybe that's what might possibly be happening in this instance...
BTW whatever happened with the US government practicing a little caveat emptor with our tax dollars?
Pentagon to crack down on counterfeit parts from China
Acknowledge this: Ubiquitous Intellectual Property theft, forced joint ventures, state and local control of almost all corporations and complex, ever evolving non-tariff barriers on U.S. produced goods and services is standard operating procedure...
There is no such thing as IP. There is no such thing as FORCED joint ventures because companies agree to them. State control of local ventures is not efficient and not a threat to anyone other than the people who squander the capital to subsidize foreign consumers. Making people poorer via regulations is a problem but for the domestic consumers.
VangelV states "there is no such thing as IP".
Of course this is the same person that laments the potential loss of capital from huge investments in energy projects. But, this is not a person that laments the loss of huge sums in Intellectual Property investment capital due to theft.
VangelV justifies theft of property by simply declaring it not property, because it does not have a deed from a land owner.
Intellectual Property development has enabled more wealth for consumers than any amount of land. I state this as an owner of modest holdings of real estate that generates much of my income.
Of course this is the same person that laments the potential loss of capital from huge investments in energy projects. But, this is not a person that laments the loss of huge sums in Intellectual Property investment capital due to theft.
As the link I provided argues, it isn't theft.
VangelV justifies theft of property by simply declaring it not property, because it does not have a deed from a land owner.
Not at all. I use the Rothbardian argument that all rights are property rights. I certainly see no role for government offering special privileges via the patent process and certainly see no need to have government try to meddle in copyright issues that are a matter between the creator and the supposed thief.
Intellectual Property development has enabled more wealth for consumers than any amount of land. I state this as an owner of modest holdings of real estate that generates much of my income.
But that is <a href="http://www.stephankinsella.com/2009/07/02/yet-another-study-finds-patents-do-not-encourage-innovation/" not true. IP laws provide wealth to the privileged who discourage competition by using the force of government but they rob those that come up with essentially the same products independently and consumers who have to pay much higher prices.
There is no evidence that free trade results in lower prices for American consumers!!!
Free trade has four separate impacts on prices paid by American consumers and only one of them promotes lower prices while the other three promote net higher real prices. Since prices are increasing it is reasonable to assume the other three influences overpower the benefit of cheap imports.
The first impact of free trade on consumer prices is cheap imports. This indeed does promote lower prices especially during that period that importers are using their cheap labor to suppress domestic competition.
With free trade Americans pay higher prices for the domestic consumption of exported goods. Free trade opens markets which increase demand. Other things being equal, increased demand results in higher prices. Domestic consumers either pay up or output goes to foreigners. Check recent price increases in beef, pork, and grains. China has recently developed a liking for pecans. Result: Americans will be paying more for their pecan pie this Thanksgiving because they are being exported to China.
Currency Manipulation : Third, while all the usual suspects deny it, our government is working diligently to drive down the price of the dollar in order to promote exports. The same thing we are accusing China of doing! This drives up the real price of imports. The big player here is the price Americans are paying at the pump. Oil is priced in dollars and when the value of the dollar declines the price goes up.
Wages: Fourth, the impact of free trade on wages drives up real consumer prices. Imported goods and outsourced jobs reduce the demand for American workers reducing their real wages. Thus, free trade and outsourcing reduces real wages which is same as increasing real prices. The real wages of blue collar workers peaked in 1973 and are down since as a result of free trade. If the trend in real wages between the end of World War II and 1973 had been followed since 1973 the real wages of American blue collar workers would easily be 25 percent higher than they are.
The net result of this is higher net prices as confirmed by the CPI. Factors promoting higher prices overpower the influence of cheap imports. Bottom line here is that Joe Sixpack and family takes a free trade reduced paycheck to Wal-Mart to do the weekly shopping any saving from cheap imports are wiped out in the grocery department and when the family car is refueled the family is losing out to free trade.
The converse of the failure free trade to give us lower net prices is that tariffs did not give us net higher prices. In the 1890s, with tariffs above 40 percent American blue collar workers had real wages double that of their European counterparts. This is equivalent to saying Americans had real prices half that of Europe.
Free trade does give us lower prices on goods imported. But that is not the same thing as giving us lower prices overall.
. China has recently developed a liking for pecans. Result: Americans will be paying more for their pecan pie this Thanksgiving.
Why do you hate American pecan growers?
The real wages of blue collar workers peaked in 1973 and are down since as a result of free trade.
Evidently, since nominal wages are much higher than in 1973, you're saying that inflation is the result of free trade. It's not caused by putting more money into circulation, the fact that one can purchase a pair of shoes made in China for roughly half the price of a comparable pair of domestic shoes means that real wages, as opposed to nominal wages have decreased since 1973. Pardon me if I gasp in disbelief.
To James (5/28/2012 6:02 PM),
Currency manipulation is not a part of free trade. If done, it is just another predatory action by governments.
All of the other effects you mistakenly report would be just as true for trade between the US states. Your policy conclusion should be to stop that trade. The population of each state, according to your points, would thank you.
You could even go further and stop trade between counties within states. Give people a chance to develop local industries without outside competition and interference.
No business likes competition, but consumers are much better off with free trade on the widest possible scale.
"what about that?"
After all the many very good posts and comments you have had an opportunity to learn from over the months, and your comments on this thread reflect your understanding of macroeconomics?
Pathetic.
"opportunity to 'learn' "...
good God!
"Free trade does give us lower prices on goods imported. But that is not the same thing as giving us lower prices overall."
James! Where have you been? Your unwavering tariff nonsense has been sorely missed!
""opportunity to 'learn' "...
good God!"
LOL
Never one to disappoint, Larry demonstrates my point.
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