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Posted By Clyde Prestowitz
Friday, November 19, 2010 - 3:15 PM
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The FT's Martin Wolf managed to find some encouragement in the final communiqué from the Seoul G-20 meeting. In a column earlier this week, he said that language describing the use of various measures of global imbalances and suggesting the need for action to rebalance chronic current account surpluses and deficits suggested that, under the radar, the U.S. and China are moving toward consensus on a way out of the apparent impasse reached in Seoul.
I told him that I marvel at his optimism. But let's say, for the sake of argument, that he's right and that the U.S. will move toward trying to produce more of what it consumes and exporting more of what it produces while China does the opposite. I think there remains the major question of whether either side can actually, physically do what is necessary to achieve rebalancing.
This question occurred to me last night after a chat with a friend from FedEx who mentioned that while his planes fly fully loaded from Asia to America, they return to Asia almost empty. Well, of course, that makes a lot of sense because we don't make much here in the United States that FedEx can take back. Of course, we do export to China, but in recent years our biggest or second biggest China bound export items have been waste paper and scrap metal, and those items go by ship. In the high-value, low-volume, high-tech category of goods that fly well, the United States, despite its self-image as the world's high tech leader, has a trade deficit that will likely exceed $150 billion this year.
Let's take a few major products to see how things might work. Steel, for example, is a key product for any industrial economy. The United States imports about 30 percent of the steel it uses while China has more steel making capacity than the rest of the world combined. So, in a rebalancing scenario, Washington would try to find ways to encourage U.S. companies to buy more of their steel from American producers. But the government would run into the problem that there may not be enough actual production capacity left in the United States to allow a substantial reduction in imports.
Of course, more production capacity can be built, but not in any short period of time. Construction of a new steel mill, even if anyone would have the courage to build one in the United States knowing that China's producers could at any moment unleash a flood of cheap exports into the market, would take one to two years.
At the same time, China already produces virtually all of the steel it uses and has enough production capacity to fulfill domestic demand many times over for a long time to come, even without increasing production capacity. So China's steel industry really can't rebalance. It can't sell a lot more than it already does at home, and if for some reason it stopped its overseas shipments it would be left with massive excess production capacity that could easily bankrupt its companies.
As another example, take the Apple iPad. Apple is an American based company to be sure, but virtually nothing in the iPad is made in America. Of course, the product is conceived, designed, marketed, and sold in the United States, but the components are mostly made in Japan, South Korea, Taiwan, and Singapore, and the assembly takes place in China. So rebalancing implies that maybe some iPad production would be switched to America.
In principle, there is no reason why the semiconductor chips, displays, and other key components of the iPad couldn't be made competitively in the United States and inexpensive assembly could, perhaps, be done in Mexico or elsewhere in Latin America. But that would mean that the major factories and investments that have been made in iPad production in Asia would have to be at least partly abandoned. That would result huge financial and job losses to which Asian governments would object.
I sometimes wonder if economists consider these structural, nuts and bolts issues when they talk blithely of rebalancing. These are not things that can be turned on and off like a spigot. It takes a couple of years to build a new semiconductor plant and costs $5-8 billion. Once that investment is made, it is not quickly abandoned unless there is some major change in circumstances.
In his column, Wolf insisted that the U.S. and China must achieve rebalancing fairly quickly in order to avoid protectionism. But is it possible that the action actually runs in the opposite direction -- that some degree of protection might be necessary in order to create the change in circumstances necessary to achieve big shifts in the location of production and thereby also achieve the holy grail of rebalancing?
Clyde Prestowitz is president of the Economic Strategy Institute and author of The Betrayal of American Prosperity.
The G20's final communique says that persistently large imbalances warrant an assessment of their nature and the root causes of impediments to adjustment.
First, research will be carried out into what exactly are "persistently large imbalances" that threaten sustainability. The results, once agreed, will allow the assessments to start. No doubt the impediments will then have to be investigated and agreed later. What happens finally is unclear.
Sustainability - no rush.
Having gladly transferred all the latest US manufacturing technologies to China, US does NOT have anything left to sell to China unless wage rates in US crash to China’s level. So China’s poverty rate has to return to US to rebalance the trade unless US is willing to discard WTO.
Nixon’s embrace of China to counter Soviet Union in 1972 has come back to haunt US in the form of second cold war just as Reagan’s embrace of Islamic fundamentalists to counter Soviet Union in 1980s Afghanistan came back to haunt US in the form of 9/11 attacks.
US deliberately promoted trade with China, its ally to contain former Soviet Union. Trade with China expanded by leaps and bounds during 12 years of Republican rule beginning in 1981. After campaigning against butchers of Beijing in 1992 elections, even Bill Clinton became an enthusiastic supporter of trade with China once he took lessons in foreign policy from Nixon in early 1993.
Had it not been for that Nixon embrace in 1972, China’s economic miracle would have been far more slower with all the US, West European and East Asian markets closed to cheap Chinese products. Had it not been for that Nixon embrace, China’s technological progress would have been far slower in the absence of West’s technology transfers. Had it not been for that Nixon embrace, China’s military progress would have been far slower in the absence of huge forex reserves that China accumulated from the massive exports of cheap Chinese products and China used those forex reserves to acquire latest military technology.
It was not Nixon’s embrace that lead to our problems with China. During the Nixon administration all that occurred was the beginning of the normalization of recognition of China in what is known as the Shanghai Communiqué. It was not till 1979 where vice Premier Deng Xiaoping began taking about trade relations in the Carter administration. But we should really blame ourselves. The American consumer’s quest for cheaper goods forces organizations to open up shop in countries like China to maintain the price down of goods down for the american consumer. I find somany people wanting the best deals on electronic goods that they forget it is comming at someone's expence. This is not a Republican or Democratic thing. It is and American thing.
Absent your scapegoat Nixon......
One doesn't defend Richard Milhaus Nixon, certainly not in this post. Far from it. Tricky Dickie.
So, that genuinely said, if it weren't for Nixon/Kissinger, give us the scenario of the PRC from 1972 to the present. What would the PRC be today without Nixon and how would it have arrived at such a position?
Without Nixon, would the CCP/PRC be any different today, for better and/or for worse? How and why? Any different? A better or worse influence on the world? A better or worse --or the same-- place domestically.
Explain yourself in detail, Marty Martel. We deserve better than your tired old recitation of declaratory statements against the (indeed questionable) decision of Nixon/Kissinger de facto to recognize the PRC and develop its economic and trade integration into the world, the globalized economy in particular.
I mean, for example, thanks to the United States the PRC is a member of the WTO, North Korea is not. Should Nixon/Kissinger have gone to N Korea too, or would that have been the same or similar equivalent 'disaster' as their having gone to Beijing to meet Mao and Chou En-lai et al?
Give us an analysis rather than your usual and regular declaratory dogmas and rote recitations. Until you do so, you leave us wondering how you differ from the predictable and boring blah blah of the CCP/PRC itself.
This is the second article of knuckle-dragging stupidity from Clyde Prestowitz that Foreign Policy has hosted in the last two weeks. Putting aside the fact that the US is a more advanced economy than China, and that accordingly, US products are usually shipped via the internet and not via Fed Ex package, even in 'hard' goods, the US is the second or third largest exporter of products to China. Also, the US exports just about the same amount of goods and services as China does, which sort of gives the lie to the canard that American manufacturing and exports are dead.
Even on the details, Prestowitz reveals himself to be either a fool or a poor man's Lou Dobbs (who is, come to think of it, also something of a fool). Semiconductors? Just a couple of months ago Intel announced that they will be building their two largest fab plans ever - in Arizona.
US exporters don't need protection, and the type of 'medicine' advocated by Mr. Presto would be disastrous both to US competitiveness and to the world economy. We all remember how those 'voluntary' Japanese import restrictions made GM so competitive for all those years, don't we?
Foreign Policy needs to have some sort of vetting process with regard to its editorial writers, lest it lose all creditibility as a serious journal.
I suppose we should be grateful the G20 communique at last acknowledged the huge problem. Member governments finally agreed there is real concern over global trading imbalances, and wanted to know the root causes of impediments - such as regulatory capture, security, other public goods, and Triffin.
Even if there is little urgency to introduce sustainability.
A simpler solution might be for a US agency to give a determination periodically about the correct market value of the chinese currency and the difference between market and actual rate getting automatically added to the tariff. This would enable more fair decisions regarding location of plants etc by US industries leading to rebalancing over the long term.
I don't think the United States takes exporting to China seriously. We ought to focus on Europe and emerging markets in other parts of the world. China is determined to avoid dependence on imports. The government is always encouraging the development of its own high-tech to avoid using American-designed parts.
China has cheap labour, that is the theme for its labour intensive economy. China already had said it is willing to cooperate to reduce USA trade deficit. However, what is China expected to buy from USA? China asked to buy super speed computer many years ago, but USA refused to sell to China and if they did sell, it was comparatively low speed. So China had to build its own super computer and it took many years. China likes to buy high tech military equipment, but USA and EU continue to have the selling of military weapon embargo in place since 20 years ago. So China had to develop its own jet aircrafts and modern ships. China cannot buy any reasonably high tech equipment from USA before it is stopped by congress/senate claiming the endangering of national security. What does the USA wish China to buy in order to offset trade deficit imbalance? China had already bought a lot of Boeing airplanes for its domestic aviation industries. What else does USA want China to buy? Does USA want China to buy 800 million pairs of cheap jeans and shirts from USA? When it comes to rare earth elements purchases, USA actually pushed China to sell more and USA does not complain it will make more trade deficit with China. In order to offset the trade deficit, I suggest USA should sell its F22 predators to China before China finish its own 5th generation planes before 2020 years.
China could begin to buy or incorporate from the United States dishwashing machines, clothes drying machines, cooking stoves or ranges instead of dangerous trailer park gas cannister-two burner cookers, can openers that don't break in your hand as you struggle to crank them, hot water heaters for your sinks in your houses and for showers, heating systems for homes schools and offices during winter - preferably central heating - modern medicines, environmental protections that would allow the population drinkable tap water instead of having to buy purified water because all the 'fresh' water sources are deadly to drink, single family homes instead of only high rise apartments in the congested developing areas, goods that don't break after one week of use, services that don't rip you off with no redress or remedy, doctors who don't have to submit with justified upset to labor in hospitals 6 days a week at an embarrassing pay with no benefits, workers who don't have to work 10 to 12 hour days 6 days a week because their employers arbitrarily say they must work unreasonably to make big profits for the company while getting low pay and no benefits, government officials who don't demand your property in return for limited access to government services that are the natural and inherent right of citizens, modern and nutritious food that isn't still the peasant food of previous generations, sane driving behaviors that don't have cars driving or parking on sidewalks and blasting their vehicle horns at you to get out of their way or be killed because they are rich enuff to have a car and you as a Chinese are not.
One easily and readily could go on.
Yes indeed, there are a lot of things the CCP/PRC could buy (or incorporate) from the United States, Japan or the West in general. Doing so might get the Chinese mind off its fixation on "settling old scores" and away from the ancient decrepit mindset of revenge and vengeance. It might get the Old World Chinese mindset thinking optimistically of the present and the rational future instead of its being fixated on grudges and on the resentments and hates of past times and events.
You sound like an used-car-salesman who said his vehicles are much better than the new ones. If I am not reading it wrong, you asked the Chinese to buy dish washing machines, stoves, heaters, etc from USA. You must have been in China before the year of 2000. For your information, China is producing new brand of dish washing machines, clothes dryers, heaters, etc. Why would any Chinese want to buy those machines made in USA, unless they are cheaper than the Chinese ones. Even with an 2 to 1 exchange rate to the dollar, it is still more expensive to bury from America. I don't believe USA still make any TVs or Blue Ray Machines or if it does but will not be in significant numbers. Pal, you live in the by-gone days! Wake up to the reality: China doesn't even want to buy your rail system because China is at the fore front of rail system.
This is not to say China is technologically advance. As you had toed the CCP line: China is a basically a third world countries. Therefore, it wants to balance the trade deficit by buying your oil exploration right, your F-22 and large transport planes but not any old transport plane manufactured in the 1950's.
It is really funny:every time you write, you keep asking people who had been oppressed by your country whether the victims have vengeance in their mind. You keep confused about the domestic policy of USA with its foreign policies. As for domestic policies, USA are good to its own people. However, as for foreign policies, USA is hegemonic in nature to other countries. Just ask the people in Iraq if they are happy about the invasions. From the stand point of USA citizens they are happy that Saddam Husein is gone. On the other hand, Iraqi people view the invasion which cause more than hundred thousands dead. Whereas in terms of domestic and foreign polices for China, it is the opposite of USA. China treats its own people very bad and treats people in other countries fairly good. However, it does not give the right to USA to oppress other countries or China in the by-gone days. When people in China think of USA, it does not consider its new implementation of medical care system nor does it care if America has gained more territory in the North Poles. Most Chinese when they think of America is that America has excess spending in polluting environment for the last 100 years. Most Chinese would remember the recent events of the Yinhe (Galaxy Ship) incident, the bombing of the Belgrade embassy, the aircraft collision of EP-3 and the J-7, etc and not to mention events before the WWII. In most Chinese eyes, USA has lots of money and have policies which are good for its own domestic policies and undermines other countries economy intentionally. For example, the recently implemented loose monetary policy by printing more money. Another example, USA supports Tibet to be part of China officially, but on the hand, it pays other organizations to undermine it. However, it does not pay those organizations to undermine India's claim to the South Tibet. That is just hegemonic and hideous.
Indeed, thankfully BILL888 your Old World mindset of the long term grudge, of revenge and vengeance is not representative of the Chinese people as a whole. It is representative however of but two segments of the Chinese population that are 1) of the 5000 years of the Jung Gwo but not of the CCP and 2) the CCP which necessarily are anti democracy and liberty.
That's reflected when you --again-- write as you do above, and I quote:
"Most Chinese when they think of America is that America has excess spending in polluting environment for the last 100 years. Most Chinese would remember the recent events of the Yinhe (Galaxy Ship) incident, the bombing of the Belgrade embassy, the aircraft collision of EP-3 and the J-7, etc and not to mention events before the WWII."
Remembering events from before WWII???? My god. Which events might those be? Anyway, you seem not to remember that from 1937, previous to Pearl Harbor US volunteers went to China to help the Chinese to resist the invading Japanese. Each Chiang and Mao had his own entourage of US diplomats, military and intelligence officers of the United States with him each day in the years before and after Dec 7, 1941. However this is not taught in the PRC so the population as a whole is oblivious to the reality.
Unfortunately the CCP teaches grudge, revenge and vengeance to the population, all of which simmer continuously. I suppose the US got its revenge for Pearl Harbor in more ways than one, most specifically in finally and decisively ending the war in the Pacific and in the Tokyo War Crimes trials afterwards. More importantly however, as with Pres Lincoln towards the vanquished Confederacy, the US government and its people were positive and constructive in dealing with a wholly defeated and prostrate Showa Japan. (Some Americans are likable you know. While I would recluse myself from this assertion to you, I'd none the less encourage you to make an effort to try to find out.)
Maybe you and your Old World grudge and vengeance syndrome compatriots might consider taking your many bents, er, cases to the Hague or to some other international legal forum to see how your sharp edged attitudes would fare before such tribunals. Maybe your briefs would hold up in court, but if they didn't you certainly would be exposed.
50 years of husehold applicances
I'm not far geographically from the PRC so I visited my Chinese friends and former associates on the mainland last month during the 7-day National Holiday from October 1 - 7. (Chinese workers don't get vacations, so there are nationally idle holidays when even the government closes completely for a week).
I quote you again Mr. BILL888:
"You must have been in China before the year of 2000. For your information, China is producing new brand of dish washing machines, clothes dryers, heaters, etc. Why would any Chinese want to buy those machines made in USA?"
How's it feel to eat crow? Well, actually you not entirely inaccurate about myself in particular because when in 1997 I was living and working in South Korea several friends and I took a tour trip to visit Beijing, so I was in the PRC before 2000, however briefly. At that time, the government was driving peasants in their slums out of Beijing into the countryside in favor of modern new government palaces, upscale tourist hotels and state corporate 'businesses.'
Now, here - have a second helping of crow. The Chinese people want to buy those household appliances because they don't have them, nor are they about to have them either presently or in the foreseeable future. The CCP elites and the minions they control have such appliances, other Western modern household conveniences and more, or soon will receive them. (There aren't many residential swimming pools available to PRC residents however.) Indeed, the ordinary Chinese people in the developing areas know the CCP serves only itself and throws crumbs to the tiny and struggling middle class, even less to the 800 000 000 peasants suffering in the countryside your 5-year or 12-year grandiose and thoroughly bogus plans not withstanding.
Americans stop to be crying babies
About 25 years ago, Americans were crying about the trade deficit with Japan. 25 years later, Americans are still crying about the trade deficit but this time with China. I think another 25 years later, Americans still cry about the trade deficit and it will be with India. So, even if American close down all the trades with China, America still will not start production to make cheap clothing and shoes. If America really brings back all the production for shoes, each pair of shoes will cost $2000 and eventually it is a lost in terms of buying power.
But I don't think "Americans" were crying about the trade deficit with Japan, only a few idiots like Mr. Clyde. If China (or Japan) wishes to pursue a mechantilist policy of limiting imports while relying on exports, that's just fine with the US, although in the long run, it bad for the exporter, and the example of Japan has shown.
China has all those cheap exports such as cheap shoes, rare earth elements, cheap plastic toys etc export to the world and ended up with pollutions and inhaled lung diseases for the miners. Yet China did not cry to the world and foreign companies about all these problems. China is set in its next 12th Five Year program to tackle all these problems. China does not blame the world regarding all these problems as a result of cheap exports. Also, China lends its money for America to continue this way. Do you hear China is crying to the world? America is crying to the world like a baby. Why is it not a crying baby?
You continue to butress your ignorant statements with more ignorance. Nobody ever forced China to export cheap crap to the US. China has lax enforcement safety rules (Shanghai highrise, anyone?) as uses this as one of its 'competitive advantages' (which unfortunately gives ammunition to arguments that idiots like Clyde would use) so the Chinese workers have have no one to 'cry to' except themselves. Of course, they could complain to their own government - but since no one wants to end up in the gulag or an insane asylum, which is where China's wonderful government puts anyone who complains, is not very likely.
By the way, China doesn't 'lend' the US anything. China manipulates its currency to maintain its cost advantage, the inevitable result of this is that the central bank collects large amounts of US dollars, since it has to in order to maintain the FX rate. The 'lending' you describe is simply an export subsidy for Chinese businesses.
Check out a few facts next time before posting.
China had bought a lot of treasury bills from USA. This treasury bills are to be repaid with interest when matured. And so, when I go to a bank and ask for a loan, I have to repay the money with interest. The bank had just "lend" me money. You asserted that "China doesn't 'lend' the US anything." I suppose you can call it "China imported a lot of treasury bills". But call it whatever you want, that is "lending like a bank".
China had bought a lot of treasury bills from USA. This treasury bills are to be repaid with interest when matured. And so, when I go to a bank and ask for a loan, I have to repay the money with interest. The bank had just "lend" me money. You asserted that "China doesn't 'lend' the US anything." I suppose you can call it "China imported a lot of treasury bills". But call it whatever you want, that is "lending like a bank". And we will can American "an ignorant baby" with Chinglish.
Repeating something doesn't make it any more right. Yes, China owns a lot of T-Bills, because they have a lot of US dollars that they have to buy to keep the currency peg. What do you do with US dollars? Buy T-bills with them. The B-Bills are already issued. Pay back with interest? Maybe. The other option, I think, is to simply inflate the currency away. It is China who is taking the risk here, not the US, bub.
So what is Freetrader complaining about again?
" China has lax enforcement safety rules (Shanghai highrise, anyone?) as uses this as one of its 'competitive advantages'".
And it's clearly working, with the Americans at the very least. They would happily buy the cheaply made Chinese goods in droves. It's not likely China cannot produce higher quality goods, just look at ipads, Sony PS3, etc. But if the Americans in general want cheap products why should Chinese companies produce higher quality goods which Americans may not buy?
"so the Chinese workers have have no one to 'cry to' except themselves."
Oh this is rich. The other day Freetrader asked me why do Chinese folks care about foreign media's bias against them. A better question is why would a person like Freetrader who hardly even knows about China (though he thinks he does) pretend to care about Chinese workers at the first place? If anything by the manner which he posts he hates China.
"By the way, China doesn't 'lend' the US anything. China manipulates its currency to maintain its cost advantage, the inevitable result of this is that the central bank collects large amounts of US dollars, since it has to in order to maintain the FX rate. The 'lending' you describe is simply an export subsidy for Chinese businesses""
Oh please. Lending is lending regardless of the reason behind the lending. When the bank lend me the money for a mortgage does it matter the reason why the bank is lending me and the inevitable result that the bank will likely to benefit as will I?
NPLs in PRC state owned banks now total RMB 7 trillion, which requires a more diabolically creative bookkeeping to obliterate than to create. In other words, such NPLs are not sustainable.
Additionally, Beijing now has switched to PPP Theory from boasting now faltering GDP to try to kill two birds with one stone. That is, Beijing is trying to use a theory (PPP) versus a reality (GDP) to persuade its population that things are better than the people know them to be, and to argue that exchange rates eventually will equalize on their own (market forces).
The problem with PPP Theory is that a myriad of externalities, such as currency manipulation to identify one, preclude the theory ever becoming a reality.
The PRC is about to experience the shock of "volcanic" inflation which already is running at an annualized rate of 4% and is projected to increase only linearly for the next five years, in other words indefinitely. While previously the CPI fluctuated, it is now will only steadily increasing but most immediately will experience a sudden explosive accelerated rate. The shaky real estate based economy of the PRC, or any economy of any country, cannot sustain such shocks as are imminent in China.
What you had written is that you are toeing the CCP line: China is experiencing inflation of 4% and the government is intended to cap it. And if it is not successful, it will be blown up like a volcano. It is true. It has been reported widely. You had toed the CCP line correctly.
You claimed China should let its currency to free flow and it will solve the deficit problem. Ummmmmm. China recognizes this is the eventual outcome. However, any immediate action is not good for both the USA or China. USA's deficit is inherent in its economic structures. If America does not buy from China, it will buy from India, Indonesia, Phillipines,etc. It will not set up productions for cheap shoes and cheap jeans in America again. At the same time, China has more reasons not to buy any airplanes or high tech equipment from USA. Also, India, Indonesia etc will not have the demand to buy airplanes as much as China does. So, free flow of Chinese currency will not solve America deficit problem. It will just transfer to another country. Furthermore, a China with high exchange rate will be able to compete with America to buy other resources from the world, which will lower the spending power for USA consumers.
In China domestic side, this sudden ascend of currency will definitely reduce export. However, I believe this sudden reduction is just short term pain. It will not last long, like Russia. It will probably take ten years before the economy will be back to normal. Before it is normal, it will decrease demand in resources and high value products like cars and TVs. Foreign companies company will lost a large market for another ten years. In the international side, Canada, Russia, and Venezla etc will lose large revenues from selling resources. Moreover, this sudden reduction in export may destabilize China's society for a while. (I will not worry it will split the country.) Therefore, the Chinese government recognize the problem and will implement the change in its up coming Five-Year-Plan. May it will require ten years before it is successful. It will be the responsibility of China's next generation of leaders.
when I say "deficit", I mean " trade deficit".
The USD$$$$$$$$$$$$$$$$$$$$$$$$
What is/are the forex reserve currency of of the United States? How much in RMB does the US have as its forex reserve currency? How much in Yen? How much in Euros? Pound Sterling?
None.
The reserve currency of the United States does not consist of foreign currencies of any kind. Rather, the reserve currency of the United States is --duh-- the USD$. (See: Federal Reserve System.)
There are USD$ 7 trillion in forex reserves held by governments throughout the world. Of this amount, the PRC shamelessly holds $2.5 trillion and the counting continues as last quarter Beijing added another USD $165 million to its forex reserves.
The only reserve currency the US has is the USD$. This is unique in the world and in the global economy.
The United States is (by far) the principal foreign reserve currency globally while simultaneously being free of having to hold any foreign government's currency (or combination of currencies) as a forex reserve. The USD$ is the reserve currency of the United States. This is unique.
It is also true and a fact that the United States, as with all other sovereign governments, controls the value of its own currency. This is unique to the United States. No other government has this exclusive status and standing. Consequently, after the Fed announced QE-2 the PRC commerce minister held a rare press lecture to state that the PRC is "under attack" by the US. The Chinese extingui, er, distinguished minister of course means the Fed and he means that the PRC held USD$ foreign currency reserves Beijing is standing there holding (in a bag) is controlled in its value by the United States (i.e., the Fed).
Further, the fact is that QE-2 is peanuts, small potatoes. In the $15 trillion economy the US, $600 billion of QE-2 per se is insignificant in the long term. The US needs $4 trillion of successive incremental QE's to successfully inflate its way out of the current severe downturn. So look for more QE's from the Fed over the next few years. And look for Beijing's UDS$ forex holdings to evaporate by as much as a half and likely more.
The United States controls and determines the value of its own currency. This is not some part of a currency war, it rather is the simple and easily understood fact of sovereign monetary realities and policies, always.
Really, if I make a unique football, have the market on it and sell it to you for $10 and you decide to buy 100 of my footballs, then because it's my creation I tell you and everyone else the football is worth only $4, where does that leave you? It leaves you screwed along with the sap I also sold you to get a better grip on it.
I think there should definitely be more incentives for US companies to develop these technologies here. Unfortunately iPhone development is well entrenched in China, and would be unlikely to move back here without significant incentives.
Impediments to G20 progress? We've been here before. The impediment to progress at the United Nations and its forerunner the League of Nations was national interest. G20 members have also hit this wall - they've formally noted that the current 'political economy' is unsustainable.
You might think the crucial next step would be to prevent the causes. However there is unlikely to be an appetite to take this further beyond rhetoric; especially when national governments refuse to address similar weaknesses within their own territories.
To begin, it would have been helpful to have had more examples, or certainly less simplistic ones. When you think of all the stuff a human being consumes in a day, there must be some more compelling examples.
The main problem though, which no one seems to address is that westerners in general, and US inhabitants in particular, simply consume too much. Of everything. If we consumed less, and put more value on each item we obtained, we probably would shop closer to home naturally. You could buy a top at Walmart for $7, and it would not hold up to wearing and washing, and you'd probably spend another $7-$10 every fews months ( oh, sorry - $9.97), or you could buy a $65 top at a local boutique and you would take care of it and it would last, and still be in style in 3 years.
The other thing to remember is that the large corporations involved in US steel consumption, iPad production, etc., etc., do not have a patriotic bone in their soul-less bodies.
They are happy with how the current situation works for their profits. They don't see it as their responsibility to create jobs in the US or, indeed, to help the US economy at all -- unless it gives them even greater profits. And the way the current tax laws work, they are doing great.
The poster children for this are Exxon and GE, both massively profitable in 2009 on a global basis, but paying zero income tax in the United States.
Rebalancing=end dollar dominance
'Rebalancing' the world economy means first and foremost addressing the position of the dollar as the world's dominant medium of exchange.
Because of the dollar, the temptation to keep interest rates low is not kept in check by inflation fears. Thus American monetary policy does not face the constraints of central banks elsewhere in the world: The Fed's punch bowl never empties and never leaves.
The dollar prevents surplus countries from diversifying their foreign assets. The currency is force-fed to the rest of the world, then shitted out again in the US in search of ever lower returns (in recent years often camouflaged by risk assessment fraud, eg. AAA CDOs with large subprime tranches).
This flood of returning dollars encourages massive credit creation which is, again, unconstrained by inflation fears. On the other hand, American investors see much higher returns on FDI and foreign assets - how's that for an 'unfair advantage'?
Reserve status also means exchange rates are hardly a measure of terms of trade. In most cases, it leads to a structural overvaluation of the dollar, which has the effect of siphoning off demand from the rest of the world. Again, this effect remains largely 'invisible' since dollar inflation has long been America's largest and most profitable export category.
It's easy to see how the system feeds off itself: trading partners like China become overly dependent on the American consumer, who in turn depends on credit created by returning dollars from China et al. Meanwhile, the uneven terms of trade destroy American exports, precluding any correction in the relationship.
In short, the dollar is a mixed blessing at best for US citizens, and a definite curse for the rest of the world. Yet reversing global dollar dependency is largely anathema to US policy makers, who even have the chutzpah to deftly turn causality around (your surplus is our deficit!), deride trading partners for adjusting to dollar dominance by pegging exchange rates, and admonish them to stimulate the internal demand that has been suppressed by American demand-pull.
Now I realize it takes a long time to adjust the distorted self-image that comes with a century of good luck mistakingly ascribed to 'superior' national character traits. It happens to every has-been superpower. But if the US doesn't adapt voluntarily, and soon, it will be forced to by the rest of the world. Which, given the fact that delusions of military superpower are usually the last to go, could easily turn ugly for everyone.
There are tons of things which Chinese would buy from the US.
First, there is food. Chinese middle class would gladly spend a fortune to pay for higher quality, imported foods from elsewhere. The US has plenty of land and its farmers wastes tons upon tons of food in order to drive up prices. China has too many people and not enough land suitable for farming. If the US can export beef to other asian nations like Japan and Korea (though the later nations places heavy restrictions), why not try to export more food to China?
Then there is also the housing industry. That's China's #1 growth sector, there has to some things which can be manufactured in the US completely which the Chinese will use. IKEA is doing pretty good in China and most the items IKEA provide are not made in China.
Finally you have the entire industry catering to kids. Kiddie formula, toys, etc. Given the scare over Chinese milk/toy quality, Chinese parents would happily spend more on foreign made goods.
Sure there are significant trade barriers in all of these sectors, but this is something which the US government must workout with the Chinese government. To say that America has nothing to sell to China is silly.
President Obama may have given up for now on the aim of making the global political economy sustainable. Nevertheless reciprocal trade with the rest of the world is at the heart of Washington's efforts; in the short term the president's policies are targeted at doubling exports in five years.
This will be all the harder because the rest of the world is trying a similar policy - even countries with big surpluses already might use mercantilism - and as a previous contributor noted, Washington handicaps itself by restricting the export of certain products.
This is because it is hard to balance something which has already been automatically balanced by the economic cycle of all countries in the world. In order to correctly distribute the manufacturing sector this must be an intervene effort on behalf of the government then followed by TNCs and lastly followed by small to medium sized firms. This has to be planned carefully and executed with pin point accuracy. website value
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