Western Economies Know Best

Due to the economic recession that has financially damaged countries globally, European countries have begun to support the US’s position that China should allow their currency to float like western currencies. This position is intended to restore rational market forces within the international trade between China and the rest of the world. With the current China policy to tie the value of the yuan to the dollar at an artificially low level, thus benefiting exports to the US and other markets and reduces import levels from external countries. While the global economy was appearing to be vibrant, few countries were backing the US position. Now that reality has set in, and market forces have asserted their inevitable influences upon the economic environment, other economies are feeling the consequences to China’s policy. So tension levels are rising between China and it trading partners in the West over this issue.

Some of your illustrious senators are going to come to the rescue here. They are going to propose to apply stiff penalties if China fails to align its currency with other currencies to allow for international control of exchange rates. Now with other countries getting interested in the issue, they may even make a case to the World Trade Organization to obtain broader sanctions on China.

Now here are the two questions that I would ask these congressional leaders:

First, if the US can import goods from China that are cheaper than they can be produced here in the United States, aren’t we benefiting from this Chinese foolishness? It’s not that China is cheating us out of anything, they are paying us to buy from them. A long-term strategy that they cannot sustain and that only transfers value from them to us.

The error and failure in the US is not that China is willing to sell us products far below the true costs that they incur; but that Americans are buying products that they cannot afford. If we purchased within our affordability then the China policy would not represent the threat that we are allowing it to be in our economy.

Second, why are the senators taking such a limited and near-sighted approach to this problem. Is China the only country that operates with their currency controlled by the government rather than the international markets? And why not undertake to create a policy that addresses the root-cause of the problem rather than a reactionary one that requires politicians to intervene in situations that they are neither competent in nor suited for handling? And its not just American politicians who fail to recognize the inadequacy of their skills and understanding, the political leaders of every other country are equally inept at addressing such issues.

Perhaps the senators could seek advice from people who might see a solution to the problem rather than a stick with which to beat a dead horse.