Thursday, June 6, 2013

Bipartisan Mercantilism

From the press release here and here
Wednesday, June 5, 2013 WASHINGTON, D.C. — Following new figures that show a 34 percent jump over last month’s [my emphasis] U.S.-China trade deficit, U.S. Sens. Sherrod Brown (D-OH), Jeff Sessions (R-AL), Chuck Schumer (D-NY), Lindsey Graham (R-SC), Debbie Stabenow (D-MI), Richard Burr (R-NC), Susan Collins (R-ME), and Robert Casey (D-PA), today introduced the Currency Exchange Rate Oversight Reform Act of 2013... 
 ...the bill would use U.S. trade law to counter the economic harm to U.S. manufacturers caused by currency manipulation, and provide consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment. The senators’ introduction comes in advance of upcoming talks between President Obama and Chinese President Xi.
Obviously, this is a political shot across the bow to the Obama Administration to press mercantilist trade restrictions in the upcoming discussions with China. Still, why cloak it in such nonsense as
“It is universally accepted that China and other major countries intentionally manipulate their currency to create an advantage for themselves in the marketplace” [Senator] Graham said.
Well, not "universally."

The "complete summary" continues,
"the bill specifies the applicable investigation initiation standard, which will require Commerce to investigate whether currency undervaluation by a government provides a countervailable subsidy if a U.S. industry requests investigation... 
I'm glad to see that industries which don't like to compete with Chinese manufacturers will become experts in monetary policy.
The legislation requires Treasury to develop a biannual report to Congress that identifies... "fundamentally misaligned currencies" based on observed objective criteria...
I cannot find what those "objective criteria are." Let us know, guys and gals, a Nobel Prize in economics awaits you.

If they don't like the Chinese peg, maybe next they can target Texas for its 1-1 peg to the Ohio dollar, which is obviously sucking business to Texas.

When they're done with "currency manipulation" perhaps they can get to the serious business of impeaching the Easter Bunny.

(Thanks to Alex Walsh at the Birmingham News for pointing me to the link.)


  1. This seems to be an exercise in futility. China can "manipulate" its currency by: buying gold or bonds to add to its reserves, buying African farm land, buying Canadian oil companies or buying an American pork producer. Money is just an accounting device - all those purchases have to be paid for (to a first approximation) by Chinese net exports of goods. So long as the Chinese government has a lower discount rate than American consumers, China is likely to run trade surpluses.

  2. It takes a lot of hutspah for these fools to talk about currency manipulation by China while we are in the midst of QE infinity.

    I wish someone would ask them why we should be concerned that the Chinese government wants their own population to subsidize our consumer purchases.

  3. I hope none of these senators also complain that Bernanke and Obama are debasing the dollar and hurting its standing as a global currency. What do they think happens when countries hold dollars as a reserve currency? God forbid foreign governments give us lots of stuff just to hold our green pieces of paper in their vaults.

  4. The numbers are kind of lop-sided because we don't count all of our exports to China when we determine balance of trade. Part of their low cost is due to nonexistent environmental regulation. We export lots of pollution to China but nobody counts that. What does a pound of PM2.5 go for these days?

    Incidentally, I think Baghdad Bob has moved to China. "I can say as a matter of fact that Beijing's air quality is getting better and better - that is an objective fact". -- Wan Bentai, chief engineer with the environment ministry.

  5. Actually, at least one bill to this effect is introduced literally every year in the house. During my stint as junior staff at CEA in 2006-07, the international team there spent a lot of time tracking that year's version. It has never gone anywhere yet, but it's a constant threat.

  6. I don't do monetary policy, so correct me if I'm wrong. But, the basic premise I believe is US firms turn dollars into yuan to buy chinese goods, to prevent a rise in the relative value of the yuan to the dollar the chinese govt takes yuan and turns them into dollars by buying US bonds. So, this is really question of the govt subsidizing the export industry.

    Couldn't you make the case, with substantial costs related to entering or re-entering an industry, that a country could attempt to drive out competition in order to extract monopoly profits in the future? I'm sure there's plenty written about this in the IO or marketing literature.

    I should also note that I don't believe anybody even tangentially related to this bill even remotely considered this and that I don't think this is China's strategy. Just a thought.

    1. James we don't pay for things in yuan we pay in dollars, therefore the Chinese government who makes the exchage for it's citizens from dollars to yuan will have a surplus of dollars. What will they do with them? If they invest them in our debt then we agree to pay them more dollars in the future. China is screwed both ways. If they devalue thier own currency then they "protect" their exports but are paid back with dollars that are worth literally less than before.

      It is of course always sited by protectionists that once a nation acheives overwhelming market share they can then raise prices. But in reality this never happens. If prices rise then in short order, prodction will either return here or what is more likely an other nation with lower costs will offer the same goods at lower prices.


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