America's current crisis was NOT of China's making.  As Prez. Obama stated on TV just this week, it was the Banksters that caused the loss of 8 million American jobs.  So WHY are the American pols pushing the trade war even when it is clear that it hurts America more than it does China?

1.  To cover up their own corruption and incompetence (you think they are going to harp upon the feeding frenzy at AIPAC instead?);

2.  To divert attention from the fact that they have, at the behest of their true masters (the Bankster Clan), fought off finance reform so far in America - especially in the face of Milan's criminal prosecution of 4 major Western banks for fraudulently selling derivatives to the city, and the Brits' 50% surtax on Bankster bonuses (In contrast, after the American made debacle which dragged down the world's economy, NOT A SINGLE ONE of the Banksters who perpetrated the hundred trillion dollars of fraud has been prosecuted in the U.S. - instead these same Washington pols forked over more TRILLIONS in cash and government guarantees so that the Banksters Clan enjoyed record bonuses 2 years in a row, even as the world suffers.  BTW bribing of pols is legal in America - they call it CAMPAIGN CONTRIBUTIONS, and the Banksters DO over US$100 million a year - CHEAP, in view of the trillions they got back from the pols.).

What is China to do? 

(a)  First things first - you cannot fight guided missiles with pocket knives.  Review the conduct of the economic hit teams of America and how they did it with government backing in the last few decades, never letting any crisis go to waste.  Making money the old fashioned way (manufacturing) should be the foundation for China, but if the biggest players from the West are not playing by the same rules, but instead foist their Soros and other Banksters on the world to make trillions on the world's financial pains, China needs to at least have similar capacities. 

(b)  Tit for tat trade sanctions are silly, and do not serve the purpose.  Hit where it hurts - start prosecuting the Banksters for fraud on their sale of those trillions in alphabet soup fraudulent schemes - CDO, CDS, RMBS, you name it.  Meke jail time mandatory, and impose fines at 3 times the transactional amount of securities proven fraudulent, and save the world from the fraud that is still continuing massively.

(c)  Why is the $14 trillion in American subsidies to their banks ($2 T in cash and the rest in govt. guarantees) not illegal under WTO rules?  It dwarves ALL subsidies by all nations added together since the end of WW II.  B of A is talking about opening branches in China.  Why should they be let in if they are so very heavily subsidized? If you net that out at the WTO, there is probably over $13 Trillion in trade sanctions that are due.

Here is Yiping Huang, March 15 at Asia Forum. Notice any similarities?

Most economists would agree with Krugman that the renminbi is probably undervalued. But the extent of misalignment remains a controversial subject. For instance, applying purchasing power parity (PPP) approach, Menzie Chinn of University of Wisconsin, Madison, and his collaborators used to discover undervaluation of about 40 per cent. But after the World Bank’s 40 per cent downward revision of Chinese GDP in PPP terms, that undervaluation disappeared completely. Nick Lardy and Morris Goldstein of the Peterson Institute of International Economics suggested that renminbi was probably only undervalued by 12-16 per cent at the end of 2008. My colleague Yang Yao and his collaborator at the Peking University found even less misalignment. . . .

A less likely scenario is that China would be forced to appreciate the currency sharply by, say, 40 per cent. This is likely to cause significant difficulties for Chinese companies if the exchange rate adjustment were forced abruptly. Again, there could be two possible outcomes. The first is that Chinese companies would no longer be able to export because of sudden loss of competitiveness. The market vacuum newly made available by exit of Chinese products would be taken up by products from other low-cost countries like Vietnam and India. American companies would not be able to compete with these countries. So this would not add new jobs in the US, but the inflation rate would move higher 

Most economists would agree with Krugman that the renminbi is probably undervalued. But the extent of misalignment remains a controversial subject. For instance, applying purchasing power parity (PPP) approach, Menzie Chinn of University of Wisconsin, Madison, and his collaborators used to discover undervaluation of about 40 per cent. But after the World Bank’s 40 per cent downward revision of Chinese GDP in PPP terms, that undervaluation disappeared completely. Nick Lardy and Morris Goldstein of the Peterson Institute of International Economics suggested that renminbi was probably only undervalued by 12-16 per cent at the end of 2008. My colleague Yang Yao and his collaborator at the Peking University found even less misalignment. . . .

A less likely scenario is that China would be forced to appreciate the currency sharply by, say, 40 per cent. This is likely to cause significant difficulties for Chinese companies if the exchange rate adjustment were forced abruptly. Again, there could be two possible outcomes. The first is that Chinese companies would no longer be able to export because of sudden loss of competitiveness. The market vacuum newly made available by exit of Chinese products would be taken up by products from other low-cost countries like Vietnam and India. American companies would not be able to compete with these countries. So this would not add new jobs in the US, but the inflation rate would move higher

I take up the Secretary's article idea by idea and conclude that not much was really said in the way of what the currency strategy for China will be.  A bleak situation is developing, as I argue below:

MacA: Para 2.  Given censorship and the paramount order of the state, can we trust the reports of the surplus?  Why would a rational investor rely on incomplete, insufficient, or misleading information?

MacA: Para 3.  Sleight of hand: not true that the Remnimbi strengthened vis a vis the dollar; it only appreciated vs. other currencies.

MacA: Para 4.  Circular reasoning when you consider that jobs were exported to China. 

MacA: Para 5.  Where’s the relative rates analysis now, comparing pre- and post- appreciation and extrapolating the deficit including a scenario without appreciation?

MacA: Para 6.  It is probably dangerous for him to say that he completely agrees, for fear of his status, career.  How can a policymaker ever make rational choices under such a rubric?

MacA: Para 7.  We see China’s true motives: they are afraid of competition.  This would not be wage-push inflation.

MacA: Para 8.  China is not on parity.  In the short run if China catches the flu, capital will fly elsewhere.  In the long run all Western companies trying to compete in China face Google’s fate--infringement on property right, government intervention in private economic activity, heavy-handed, uneven bargaining.  So, in the long run, Western capital will fly elsewhere without structural changes.  A China-rooted economic crisis will not be as destructive to the U.S. economy as is suggested here.

MacA: Para 9.  If they don’t let it appreciate, it will be amusing to stand back and watch the bubble burst.  Then let’s see what the response is.  In North Korea they executed the official who failed to implement a successful currency strategy.

MacA: Para 10.  I thought the argument was a multilateral one?

MacA: Para 11.  Aspirational only.  Note that economic wealth will not fix human rights, political freedom, intellectual freedom, freedom of information, or private property (proprietary) ownership.  This is the China-bashing that there is, and will be, no real response to.

MacA: Para 12.  Let it float and at least price equilibrium will find itself.  Then address price levels in real terms.

MacA: Para 13.  Managed float: another intellectually dishonest currency strategy.  But at least it would modernize them to Bretton Woods.  If China’s economist-intelligentsia believes in the Remnimbi that much, put it on the open market and see what the globe thinks of it versus the dollar for a medium of exchange and a store of value.  Obviously they are afraid of this result, I would bet, including for reasons of national pride.

MacA: Para 14.  We see the truest justification: it is ok to beggar the U.S. so that China can mobilize their non-wealth-participating classes and avoid internal complications.  This strategy is incomplete; see below. 

MacA:

What is missing from the analysis is an explanation of the fundamentals, which is often lacking in econometric analysis.

What China will eventually find out is that, as they mobilize wealth and private property ownership, if they stop short of granting unfettered access to information and they do not honor intellectual property rights, the economy will never develop into a post-modern economy, no matter how big the surplus and no matter how dominant the bargainin position.  Since the government will likely never permit open dissent and will probably never subject itself to criticism, these rights will be difficult, if not, impossible, to develop.  It is just not in China’s history, and it is a society lovingly mired in its ancient history. 

Consider also that, every day markets move on information.  Lack of it, or a spin of it, creates uncertainty and uncontrollable risk.  It will be difficult, if not, impossible, then, for the Chinese capital market to be like a Western bourse.  Because capitalists cannot help themselves when it comes to profits, they will participate, but will have exit strategies to fly on a whim, to preserve their profits.  If they can outsmart the SEC, wherefore the Chinese securities regulators?  Thus the market will be subject to great swings and asst price levels will bubble and pop several times over until a more lasting situation develops.  This uncertainty can cause great damage and may also give the military the justification to go back in time and implement old-style (5-year plans).

If Japan had a “lost decade” after accumulating dollar surpluses and not timely popping important asset bubbles, what is in store for China?  I therefore agree with the Jim Rodgers: a natural, mother of all shorts is developing in China.

McAlpha:

BTW, WHAT EXACTLY is this "post modern" or "post industrial" fantasy? America's gone through 3 tries already, first was with biotech and nanotechnology. Second was with Dot Com. Then came the decade of zero or negative real interest, and the attendant CDS fraud (the most massive in human history). All of these were attempts at taking America 'beyond industrial," and to bring about those elusive good paying jobs.

Except none of them did. Biotech and nano were niches: still viable, but never big enough to matter. Dot Com was pure fantasy - massive delusion worse then the orchid craze, and helped destroy hundreds of billions in wealth around the globe (OK, it perhaps made a handful rich).   It got WORSE from there.  The latest was the most serious, as the banksters, in their effort to suck up all the fat from the rest of humanity, resorted to outright FRAUD - CDO, RMBS and of course the notorious CDS, and other aophabet soup derivative contracts so darn complicated the salesmen themselves cannot explain them and had to resort to the age old confidence game to sell them.  Not even could the mathematician whose one oversimplified formula was the "basis" for all these fancy shmancy "products" - because his fromula had long been abused to serve as the nonexistent support for outright FRAUD.  With that and a wink from Treasury, the banksters built a hundred TRILLION dollar fraudulent scheme (today it is already more than $150 Trillion in face value and still going strong). High paying jobs? For the few banksters maybe, AND the pols they bribed (in the form of campaign contributions). For the rest of America, lost of tens of millions of jobs since they started (even Prez. Obama admitted to the number of 8 million jobs lost due to the banksters.

So pray tell what exactly is the nature of this desirable "post modern" economy that China must jump through hoops to aspire to.  I bet the commies must puzzle over that every morning when they get up.

McAlpha:

Also, WHERE in the Bible (or the Koran, or the Buddhist scriptures for that matter) is it mandated that intellectual property rights are to be "respected"?

While IP protection could be a tool used in making competition fair, BUT IP does not have the status of an 'absolute right'.  For example, it is outright evil to put the IP rights of drug companies and threaten either trade or military action, when Thailand or some African country wants to pass legislation for mandatory licensing (at reduced rates) to allow life-saving manufacture of AIDS drugs.

Other exceptions should include:

1. If the alleged IP holder is also massively infringing others' IP rights, such as making copies of tens of thousands of works withouit preauthorization, there is no cuase for enforcing the claims of the party. 

2. If the alleged IP holder is involved in monopolistic practices, its IP claims should be denied.

3. It the alleged IP holder is taking action detrimental to the sovereignty of the host country, its IP claims should be denied.

As you can see, there are arguably many other more important rights to consider.  Could it be that China is leading instead of following?

Zhubajjie

Whatever your definition of post-modern society is, I would hope it includes one where the state does not have to be afraid of what has not been said to the point that it keeps those who have productive things to say afraid of saying them.  From a western point of view I find it curious that the very things you are willing to say about the U.S. government, if they had been said about the CPC, would bring severe hardship to you and your family.  Welcome to America my internet brother, glad to have you, and our differences.  Please tell us all you would, without fear, and you will find many sympathetic ears.

I acknowledge that China is leading in many areas, no doubt.  So then why do we still need to transform its agrarian economy, as the professor argues?  China will find out, like the U.S. did, that, without a sustained effort, leadership in technology is spurious and fleeting.  Indeed, that free flow explains to a great extent how America is able to remake itself overnight: the .com, CDOs, and nano pursuits that you so aptly pointed out.  The point is that it can do these things.  How?  Freedoms.  As for China, without that free flow of information--well, we shall see about that sustainability.  So far, two of the bigger internet companies (see also Go Daddy) do not see the same type of sustainability.

As for property ownership and the religious texts, I cannot speak for the Koran or Buddhist scriptures.  However, “thou shall not steal” is a commandment, and He did not qualify property.  And Jesus did tell us to “Render unto Caesar what is Caesar’s”.  Finally God did command Noah to assemble the animals (God’s DNA IP) and provided him the plans for the ark.  Maybe these are not the patent interpretations you were looking for, but I assure you, stealing other’s proprietary secrets is malum in se; punishing ideas however, is malum prohibitum.

MacAlpha:

Malum in Se my body part.  Ideas are not all protectable, or we all would be paying 10 times what we pay for daily necessities.  Your own Supreme Court stated decades ago that, in order to promote competition and benefit the consumers, any ideas not protected by the established law (e.g., patents, trademarks, copyrights and such), or which protectable rights have expired or otherwise no longer subsist, those ideas are FREE FOR ANYONE TO ADOPT.  So your premise that it is a sin to copy, simply does not hold water.  If it does, the world still owes China and the Chinese royalties on the really big inventions such as paper making, gunpowder, the compass, etc. 

The status quo is that each and every country has its own set of laws that protect certain types of IP.  If you want protection, first you have to complete the procedures to perfect the rights.  So it is that in each and every case in which the alleged claim of infringement is made, one has to establish:

(a)  some protectible rights are involved (just saying "proprietary" is circular argument and takes you nowhere); first you look at whether those rights are protected under the laws of the nation, to that you should also apply the exceptions I stated before (In which case the IP should not be enforced - e.g., for a Google who rips off the tens of thousands of Chinese authors, WHY IN THE WORLD should its claim to IP be enforced at all?  If Microsoft is found to be a monopoly (which it had been found so in MANY jurisdictions - its IP should also not be enforceable.);

(b)  the claimant has to have taken the steps (obtaining a patent, or registering the copyright, etc.) necessary to perfect the rights;

(c)  did the claimant follow the established avenues for enforcement (by and large IP does not enforce itself - the claimant has to take positive steps to assert the rights - that is true the world over, including the U.S.). 

When all is said and done, and all the factors had been taken into account, China is already doing MORE than it should in enforcing IP rights.

MacAlpha:

You said, "Indeed, that free flow explains to a great extent how America is able to remake itself overnight: the .com, CDOs, and nano pursuits that you so aptly pointed out.  The point is that it can do these things.  How?  Freedoms."

Irresponsibility is not freedom.  'Nuf said. 

The "freedom" to do fraud is not a good thing to have.  CDS (at least the slicing and dicing version, where you can make tranch 1 "securities" out of tranch 3 agreements already sliced) is outright fraud, especially when it is done in $100 trillion amounts and sold to central banks around the globe.  So was .COM.  It is NOT a good thing to be so irresponsible with the world's future.

As you said, thou shall not steal. 

Zhuubaajie

'Nuff said.  Take it easy and try to stay out of that sandstorm.

Regards,

Hi Prof. Fan Gang, and folks,

the chinese yuan CNY is at 6.83 vs the USD in the moment.

if you go by the BigMacIndex, CNY is undervalued 49%  http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=15715184

if you analyze the Singapore Dollar (SGD), another "managed" currency, lets not use the other m-word, implying tariffs, the CNY should go to 5.75 to the dollar, or 18 % up, according to the old SGD fractions.

if you use the Model from Goldman Sachs in their famous BRIC paper GS99, the CNY should go up by about 16 % for the last 2 years.

How about to go to 6.3 CNY / USD in one step, end of April 2010, of after the end of this years NPC, and then in the old 2006 like parabola to 5.7 in the following year. Looks reasonable ? 

Jnetzel:

ALL nations manage/manipulate their currencies.  Exchange rates DO NOT exist in a free market.  When it is beneficial, there is no question that China would revise the exchange rate.  Given the history of the last bout, it is highly unlikely it would happen. 

From the viewpoint of China, this is not a question of 6.83 vs. 6.3 or whatever.   It is a question of national economic survival.  This politicization of economic issues is full court press for China-containment, pure and simple.  The same scheme was used against Japan in the Plaza Accord. 

In 2006, America rehearsed this play already.  Charles Schumer in March of 2006 announced his bill for a 27.5% across the board tariff.  Then right before President Hu went on his U.S. visit, Schumer flew to China to press his point.  In that last round, China succumbed to the pressure, and since then the RMB appreciated about 21%.

Result?  In 2007 China’s textile industry had an average profit margin knocked down to a mere 0.73%.  In 2008 that same industry incurred the first drop in sales since 2003, with over 20% of textile enterprises losing major money.  According to U.S. Customs, in 2005 Made in China textiles were about 70% of imports.  By 2009 it had dropped to 40%!!  According to a big city survey – in 2005 almost all ready to wear clothing in the low end ($10 to $15) wear were all Made in China. Today it is dominated by Made in India, Vietnam, and Bangladesh.  Mid price (JC Penney) is now taken over by Mexico and Bangladesh.  Now Made in China clothing is only prevalent in $19-24 children and baby wear.  Chinese textiles have already retreated to just bedding and towels and such. 

The more relevant statistic is that, even though the 21% rise in the RMB has killed the Chinese textile industry, NONE of those jobs went back to the U.S.  

So why is Washington pulling out the same playbook and brandishing the Schumer 27.5% tariff again, and this time bringing out other parrots like Krugman to fan the flames?  The aim is clear – America can’t stand the idea that China did not get ripped off (at least not much) by this latest round of financial fraud (NRSO approved CDO, RMBS, and CDS, etc.), and must now try to drag China down, by hook or by crook.  Seeing how effective it was that the last up valuation destroyed a major China industry (textiles), the Washington pols now insist on a repeat.

Some of the relevant nos. for CHINESE enterprises (not counting the U.S. companies using China as base and keeping their profits offshore) include:

1.  Electrical and mechanical goods are about 60% of Chinese imports, with an average profit of 2-3%.  If the RMB rises by 3%, “Made in China” will be history.

2.  Today textiles are down to 15% of China’s export, and average profits are down to 2-3%.  Same fate here.

3.  Housewares, eyeglasses, cigarette lighters and other low value added sundries – profits are all at less than 5%.   If the RMB goes up, poof goes these industries. 

4.  Shipbuilding and other low margin manufacturing such as solar panels, will also face serious challenges if the RMB goes up 5% or more.  It is life or death. 

Does China have a choice?  Just look at history and draw the famous last words, “The only good Injun is a dead Injun.”  Just look at Japan on how relentless America can be.  Also, China compromised in 2006. Has Washington appreciated the cooperation?  Or has Washington continued to amp up the noise and increase the pressure?  Further cooperation will inevitably lead to further oppression of China at the hands of the West. 

Viewed against that background, even a full fletched trade war makes more sense.  EVEN if China loses the ENTIRE U.S. market, it is not the end of the world.  American businesses, which in combination have made more than 10 times the profits from their China related activities (remember that most of the exports to America are really done by American companies having operations in China), compared to native Chinese companies doing U.S. trade.   China does not NEED McDonalds or Starbucks or KFC (each of which makes hundreds of millions from China each year).  No “trade sanctions” from anybody should go unanswered, and WTO action should be brought to counter the $14 Trillion in illegal subsidies to the financial industry alone. 

With the showing of resolve to demand equality, the Chinese economy has a much better chance of surviving.  China is not Japan.  China is not occupied by a foreign military force.  When America sees that it will lose more than it gains, it will back off. 

Jnetzel:

ALL nations manage/manipulate their currencies.  Exchange rates DO NOT exist in a free market.  When it is beneficial, there is no question that China would revise the exchange rate.  Given the history of the last bout, it is highly unlikely it would happen. 

From the viewpoint of China, this is not a question of 6.83 vs. 6.3 or whatever.   It is a question of national economic survival.  This politicization of economic issues is full court press for China-containment, pure and simple.  The same scheme was used against Japan in the Plaza Accord. 

In 2006, America rehearsed this play already.  Charles Schumer in March of 2006 announced his bill for a 27.5% across the board tariff.  Then right before President Hu went on his U.S. visit, Schumer flew to China to press his point.  In that last round, China succumbed to the pressure, and since then the RMB appreciated about 21%.

Result?  In 2007 China’s textile industry had an average profit margin knocked down to a mere 0.73%.  In 2008 that same industry incurred the first drop in sales since 2003, with over 20% of textile enterprises losing major money.  According to U.S. Customs, in 2005 Made in China textiles were about 70% of imports.  By 2009 it had dropped to 40%!!  According to a big city survey – in 2005 almost all ready to wear clothing in the low end ($10 to $15) wear were all Made in China. Today it is dominated by Made in India, Vietnam, and Bangladesh.  Mid price (JC Penney) is now taken over by Mexico and Bangladesh.  Now Made in China clothing is only prevalent in $19-24 children and baby wear.  Chinese textiles have already retreated to just bedding and towels and such. 

The more relevant statistic is that, even though the 21% rise in the RMB has killed the Chinese textile industry, NONE of those jobs went back to the U.S.  

So why is Washington pulling out the same playbook and brandishing the Schumer 27.5% tariff again, and this time bringing out other parrots like Krugman to fan the flames?  The aim is clear – America can’t stand the idea that China did not get ripped off (at least not much) by this latest round of financial fraud (NRSO approved CDO, RMBS, and CDS, etc.), and must now try to drag China down, by hook or by crook.  Seeing how effective it was that the last up valuation destroyed a major China industry (textiles), the Washington pols now insist on a repeat.

Some of the relevant nos. for CHINESE enterprises (not counting the U.S. companies using China as base and keeping their profits offshore) include:

1.  Electrical and mechanical goods are about 60% of Chinese imports, with an average profit of 2-3%.  If the RMB rises by 3%, “Made in China” will be history.

2.  Today textiles are down to 15% of China’s export, and average profits are down to 2-3%.  Same fate here.

3.  Housewares, eyeglasses, cigarette lighters and other low value added sundries – profits are all at less than 5%.   If the RMB goes up, poof goes these industries. 

4.  Shipbuilding and other low margin manufacturing such as solar panels, will also face serious challenges if the RMB goes up 5% or more.  It is life or death. 

Does China have a choice?  Just look at history and draw the famous last words, “The only good Injun is a dead Injun.”  Just look at Japan on how relentless America can be.  Also, China compromised in 2006. Has Washington appreciated the cooperation?  Or has Washington continued to amp up the noise and increase the pressure?  Further cooperation will inevitably lead to further oppression of China at the hands of the West. 

Viewed against that background, even a full fletched trade war makes more sense.  EVEN if China loses the ENTIRE U.S. market, it is not the end of the world.  American businesses, which in combination have made more than 10 times the profits from their China related activities (remember that most of the exports to America are really done by American companies having operations in China), compared to native Chinese companies doing U.S. trade.   China does not NEED McDonalds or Starbucks or KFC (each of which makes hundreds of millions from China each year).  No “trade sanctions” from anybody should go unanswered, and WTO action should be brought to counter the $14 Trillion in illegal subsidies to the financial industry alone. 

With the showing of resolve to demand equality, the Chinese economy has a much better chance of surviving.  China is not Japan.  China is not occupied by a foreign military force.  When America sees that it will lose more than it gains, it will back off. 

Zhuubaajie,

the Euro (EUR, or its predessor currencies) and the JPY are traded freely since 1974, (the End of Bretton Woods) and they make quite significant changes over times. They are not fixed by a government. Japanese attempts to influence it, did cost them a lot of money.

What you are asking for is not equality but privilege for the chinese government to set rates relative to other countries, as you see fit for your industries.

How about the equivalent right of the US government, to set rates as it sees fit in order to protect US industries?  

The US has run for many years huge trade deficits and China extremely huge trade surpluses. In the long run things have to cancel out and this is done by the devaluation of the deficit nation, here the US, which than pays back its debt with surplus export. They have to devalue until the consumption of external goods is so unaffordable, that it drops drastically. That is painful for them, inducing inflation, drop of real wages and property values. But thats how free markets work. Most middle and northern european states have taken repeated small steps, cutting wages and pensions, in order to right their ship in time and to avoid the big pains, Greece will feel now.

The alternative would be, that the US just dont pay back the debt. If you give the debtor no chance, its your choice. If you push people over the edge, this is usually happening. Would that be your preferred option? I doubt that you would find much sympathy somewhere else for your loss of property then.

Even the US did not collect the Argentine default debt with a loaded gun, so what would be your chances?

jnuetzel:

That big imbalance in trade is not of China's making.  Most of it really is an agglomeration of "deficit" that America had with the rest of the world, and those suppliers moving their final assembly operations to China.   China's "cut" is typically a measly 3-5% of the entire sum.  Extreme example is the IPhone - Apple reports that out of the $300 cost, China's "take" is only $3 - and that is counted as a $300 export from China to America. 

The ability to pay back debts comes not from sales, but from PROFITS.  So the real comparison ought to be profits, and I will bet to dollars to peanuts that American companies make a hell of a lot more profits (probably in the range of 10 to 1) from their involvement with China, than the other way around. 

The Chinese is not concerned at all that America cannot pay its debts, because in a sense America can ALWAYS pay its debts, by printing more greenbacks (which is a fiat currency backed by nothing).  The bigger concern is that those greenbacks are going to be worth less.  But history shows that the Americans would never let the greenbacks go to zero.  When it comes time to cause a strong dollar, America just starts another war, to scare the rest of the world to send their wealth to America - that had been the pattern for the last half century. 

If America is sincere in curing the "imbalance," America should remove all export and investment limitations.  It is not as though China is refusing to buy - what China wants to buy, be they technology or companies (viz. 3COM, UNOCAL, etc.), America refused to sell.  Until America cures itself of that schizoid behavior, there will always be an imbalance. 

Zhuubaajie,

I try it one more time. You simply demand the privilege for the chinese government to set the dollar exchange rate, and to deny that to the US government. In this way you disable the standard cure of their trade deficit by devaluation.  

Although tempted, I am not getting started on "fiat money" vs Gold and all the other stuff. This would become a discussion independent of Prof. Gang's article.

jnuetzel:

Don't get the world started on discussing "privileges".  It is not a "privilege" to seek to improve the living standards of the people, when that standard is only 1/10th that of the Americans.  It is also not a privilege to tell the rich countries that they should do a lot more to fix the carbon problem as they were the ones who caused it in the first place, AND the carbon emissions per person in America is still 10 times that (per person) compared to China. 

Go back and study what the American controlled IMF and World Bank demanded of the less developed world when their economy has a problem, and ask whether America wants the privilege not to follow its own "prescription" this time around.  It is clearly documented - in literally every single case of the less developed nation being forced into giving us sovereignty over the exchange rate to the West, the economy becomes a basket case - many of those same economies are still struggling today.

The hypocrisy and greed of the West are extreme. 

One Chinese person cannot be "worth" only 1/10th of an American.  It is not a privilege to seek equality, and the freedom to seek that equality. 

China is NOT asking the developed nations to give anything.  China does not rob or steal (at least nothing significant compared to the $150 Trillion CDS fraud that is still going strong TODAY).  China does not militarily occupy other nations in the service of commercial interests.  China makes products and provides services and offer them to the world, and only those willing will buy. 

Zhuubaajie,

The article of Prof. Gang here is about the Yuan/ Dollar exchange rate, and not about all your other personal grievances against "the West" in general.

If I look on the data, all other nations, I track, may it be Korea, Mexico, Taiwan, Brazil, India have floating exchange rates. Only China and HongKong fix it per Government control. I also looked up Malaysia, Indonesia. Do you call the whole rest of East Asia "basket cases"?   

jnuetzel:

WHY should China allow America devalue out of its debts??  The American government owes China over a Trillion dollars - in RMB equivalents that would be 6.83 Trillion RMB.  If China allows the U.S. dollar to further devalue, it will be paid much less on the debt. 

You owe money, you pay it back, especially since America today remains the richest nation on earth, with total assets close to $100 Trillion.  You bet, you lost, you pay up - don't try welching by forcing the RMB to artifically go higher. 

Obama's pitch about doubling American exports this year if the RMB goes up 25%, is a pipe dream, nothing more.  Both China and America export about $1 trillion each.  For America to double the value, WHO is going to buy, and what are they going to buy? 

Schumer's 27.5% across the board tariff is illegal under the WTO.  It is also a not so disguised tax on the American consumer.  Again, if America likes it so much, China should help that along.  Instead of fiddling with the exchange rate (which affects sales to the entire world and not just to America, just slap on a 27.5% export tax on all goods being sold to America for 6 months, and see what happens.  Pls just make that known earlier so we can go buy put options on selected companies.

How to get re-valuation just right:

The timing is more important than by how much.  Nor can any fundamental disequilibrium in the US or China be fixed overnight.

To the extent that an economy allows the use of imported materials into the product mix, the over-valuation scenario can be ameliorated: To give an extrme example:  If a country buys oil for thirty 30.00 dollars a barrell and the price doubles to 60.00By also doubling the value of the fixed exchange rate.  One would be paying the same in the domestic currency for the same barrell of oil as before.

A  Ferro

Zhuubaajie, 老朋友你好！最近过得顺利吗？

1.) China's peg to the dollar causes the Yuan to be artificially devalued and the USD to be artificially overvalued.  This is fact and the government in China knows it to be so.  They peg because it helps their exports. 

2.) Your argument about "China allowing the US to devalue out of its debt" coupled with your line about "you bet, you lost, you pay", is ironic in light of Fan's position where he wants the US to guarantee the decisions the Chinese government made to purchase huge quantities of US debt in order to maintain their currency peg.  China is thus "welching" here, as you say.

3.) Your arguments about taxes and the US raising them across the board against China and then China retaliated are absurd as well.

希望你上次用逻辑来分析评论。祝你好运气！

FFTMMFA:

Cute name.  Is that from watching too much porn over the internet since you moved to the U.S. (like an extension of the FFFM fantasy)?

If you wish to engage in debate, at least put some effort into it, insteading of just stomping your feet and yelling "absurd." 

Import tariffs are not only taxes (as they are paid by the consumers of the import nation).  They are also the most regressive form - as they hit the poorest of the nation disproportionately.  How absurd is that? 

Doing a 27.5% export surtax on all goods going to America for 6 months, conditioned on passage of such import tariff by the U.S. Congress, can be a very effective way of showing the American pols what a terriby mistake they made, and quickly reverse course.  Now if that is coupled with a Soro type move (really far out options), there does not even have to be much of a financial cost.  How absurd is that? 

Absurd in that it won't happen, your proposition thus being an illogical supposition.  Di you read the rest of what I wrote?  It quite logically picked apart your argument, which was easy to do and required little effort.  And thank you for your barbs about my name.  While not a true ad hominem argument, they do serve as foundation on which an ad hominem case could be made in so far as such a case is an analysis of you as a person, and not just your overarching position as a whole.  Indeed, the two taken in concert holistically provide a robust conclusion, namely that you lack the analytical capacity to present ideas according to a logical framework.  It's not your fault though, for you are the product of illogical decisions themselves.  你的逻辑不是“安如磐石”，反而“臭如拉屎”！

FFTMMFA:

Never say never.  Also, why would it "never" happen?  Because FFFM said so? Nuclear war would "never happen," but it does ont mean you do not prepare for it, and it does not mean a well placed rattling of the nuclear sabre at the right time and right place is useless. 

Bananas (you included?) have for decades declared that China's growth is faked, and that it was just not possible for the Chinese to be doing so well.  History has already proven them wrong. 

China had it duck its head and take abuse in the last few decades, for the scraps that are the American market.  It does not mean that it was O.K., or that there are no hurt feelings.  It is time to speak the truth and seek a relationship on the basis of equality.  The world is lining up to do business with China, if anyone finds the current terms or prices unacceptable, they are welcome to go do business somewhere else. 

MacAlpha,

You suggest China has acted with disregard for “freedom” and the markets in pursuing their economic interests. The trade surplus policy is their strategy, it seems, and currency manipulation their weapon. Your beloved IP rights must be the collateral damage. You appear to claim that this is all unfair and immoral. Very well.

From this perspective, I wonder then, how might you interpret the USA’s continuing deficit policy (since Bretton Woods)? Does this policy not single-mindedly support the US domestic economy? Is it not also underwritten by currency manipulation? Moreover, has it not been reinforced in the past with political force? With military force? You speak of the moral good. What price a life at 0% APR? An innocent for a flat screen TV? It makes IP theft seem a petty crime to me.

Chinese surpluses? China is doing nothing more than granting the USA its wish! Now that military/political force is not an option to iron out the inevitable (and yes, foreseeable) wrinkles, America cries foul. Well tough bikkies!

I am not inclined to believe you will agree with my assessment, and I certainly don’t pretend to apologise for China’s economic policy. But I propose neither. I propose only that you acknowledge reality – China and the USA are at trade war. This will require no agreement on who is right and who is wrong (since when did any war?). Now enough with your moralising and analysis. Nothing but hot air when the bombs (foreign reserves?) are flying.

And here’s some advice, MacAlpha. Your war has turned against you. China is winning. Bring your obvious economic talents to bear planning for a period of weak currency and (hopefully) re-industrialisation in your own beautiful country.

jonofbris