Congressional Faction Prepared To Risk Economic Ties With China

President Obama and Treasury Secretary Geithner have taken an extremely modest approach to what may experts believe is manipulative behavior by the Chinese vis-a-vis the value of the yuan. The peaceful method of negotiating  began to fall apart when China’s senior political figures accused the US of keeping the dollar weak to improve its exports. The Administration looked like it might stand by and let the insult pass.  Many members of Congress will not.

One hundred thirty Congressmen sent a letter to the President and the secretaries of Treasury and Commerce. In it they said “We write to express our serious concerns about China’s continued manipulation of its currency.”

The most serious charges in the letter were that “Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors.  U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports. “

Nearly one-third of Congress is willing to go to an economic and trade war with the Chinese. The letter that went to the Administration calls for duties on some Chinese goods. The communication also suggests that China go on the Treasury list of nations that manipulate their currencies.

The letter is not as much about US trade with China as it is about members of Congress getting re-elected, although there could be positive fallout from pressuring the People’s Republic on the yuan. The mid-term elections are only eight months away, and primaries will be well before that. If the No.1 priority between Congress and the Administration is “jobs, jobs, jobs” is so often said, China is a nearly perfect target. The mainland may indeed produce goods at below market prices and ship them to the developed world. China probably does use it currency to help give it trade leverage.

It would seem that the efforts by the Administration to quietly talk China into considering some compromises on trade and currency has ended. People who want to keep their jobs after November have seized upon China as the near-perfect villain.

It may be the violent reaction from the 130 Congressmen comes at the right time. China’s senior officials spent the last week talking about the likelihood that their country would enjoy 8% GDP growth while the US may grow at no better than 3% this year. China’s premier criticized the US national debt again and made it clear that his nation knows more about managing its economy than America does.

The tensions over trade with China have now begun to be part of the core of the issues regarding why the US economy remains mired in a period of slow growth, why joblessness is nearly 10%, and why the American manufacturing sector has been demolished. China may not have caused these problems, as the Congressmen who wrote the letter would have the public believe, but the world’s largest nation by population caused some of them.

The question that is never answered about the yuan is why the Chinese government will not allow it to float. Last November, European Central Bank President Jean-Claude Trichet tired to push the China to remove its fixed-rate currency system and let the yuan’s value be determined by market forces. Trichet was not even given the courtesy of a formal response.

The only two reasonable answers that the Chinese can have on the yuan’s value is that they keep it as it is to undermine the position of its trading partners or that the nation is worried that the yuan will become part of a vast conspiracy by currency traders to alter its value independent of fundamental economics. But, George Soros and his associates do not have that kind of power.

In his autobiography Ulysses S. Grant wrote that it was good that the Civil War came when it did because the issues on both sides of the conflict were due to be settled and the settlement was bound to be violent. Better to go through the conflict and move on with the world as it is once the war is done.

One hundred and thirty Congressmen want the war with China to be fought now.

Douglas A. McIntyre