It is amazing what happens when the United States pushes China to act responsibly and engage in free and fair trade with their largest trading partner, yes, that’s us. Without our markets here in the US, China could not possibly maintain its 10% year-over-year growth rate. Meanwhile by keeping its currency low and pegging it to the dollar at a certain rate even if the dollar goes down, the Chinese Yuan also goes down, therefore, they can’t lose no matter what. What’s wrong with this you ask?
Simple, it means that their currency is at a false valuation, thus giving them an advantage, and allowing dollars to flow into their country along with foreign investment capital, new factories, which are providing more jobs and economic growth. Not only does this challenge the United States because it is unfair, but it also hurts all of our other trading partners. And that causes them to get a little upset. They’d like us to do something about it, for the EU it’s probably too late.
However, what can you really do, as every nation is its own decision maker, and China has decided to manipulate its currency. If we don’t like it, we should stop trading with them. Unfortunately, the United States and China are somewhat intermingled in the global market, as China is holding US treasuries, and some of the largest US corporations have factories there now. In other words, one could say we both have each other by that certain part of the human male anatomy.
If you’re wondering just how serious this problem is, there was an interesting article the Wall Street Journal in the currency trading section. The article was titled; “Yuan Bet Losing Its Luster – Investors Back out As Trade Gets Riskier and an Ease Overhangs Broader Market,” by Lingling Wei and Fiona Law, published on November 10, 2011. Consider if you will as the euro zone collapses, there is a good chance that the Euro and US dollar will be par, just as the US dollar is right now with the Canadian dollar.
This will not hurt China too much because the Yuan is still pegged to the dollar, thus, it will be pegged to the Euro and Dollar, which sounds even more unfair at the current valuation. We’ve seen some pretty strong talk from US President Barack Obama on this issue and some rather harsh words in the global media from Chinese President Hu as a reciprocal response. It also appears that the Chinese President is taking it to his own people, getting them to turn against the United States, and perhaps that will cause a boycott of American products in China.
Still, many of the American products in China are more popular than the communist government there. China may not be able to allow its currency to float right now and still
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