Archive for the ‘China’ Category

Inflation, Chinese Style

Wednesday, September 19th, 2007

China’s government recently announced inflation hit a ten-year high of 6.5 percent in August. This increase in inflation is directly related to global trade imbalances, yet China is trying to control inflation without addressing that problem. That carries two consequences. First, it is doubtful this strategy can work, which likely augurs rising Chinese inflation. Second, the strategy aims to shift the onus of global trade adjustment on the U.S., which may come back to haunt China and the global economy. (more…)

China’s Empty Threat

Tuesday, September 4th, 2007

The United States Congress is currently contemplating critical legislation aimed at remedying the huge U.S.-China trade deficit. China and businesses that benefit from Chinese imports oppose this legislation, and to discourage action China has hinted at retaliation – including possibly selling its U.S. Treasury bond holdings. That threat has prompted some to argue against legislative action on grounds that risks of a trade war are too large and costly. Such thinking is mistaken. The reality is China’s threats are empty, whereas its currency manipulation is wreaking significant real damage on the U.S. economy. (more…)

US – China Trade: Pay Now or Pay More Later

Sunday, May 6th, 2007

After several years of patient negotiation, the US appears embarked on a harder stance in dealing with its China trade deficit. In Congress there is talk of veto-proof legislation addressing China’s under-valuation of its currency, while the Bush Administration has imposed tariffs on coated paper products to offset Chinese subsidies. Behind this shift is a dawning recognition that China is unwilling to reduce its surplus, and that reduces the policy choice to one of “pay now or pay more later”. (more…)

Who’s Afraid of China?

Thursday, February 16th, 2006

In the early 1980s the U.S. suffered record trade deficits and severe de-industrialization as a result of an overvalued dollar. Those problems were tackled by the 1985 Plaza accord - an agreement between the U.S. and its major trading partners - which depreciated the dollar, reduced the trade deficit, and helped keep the economic expansion going. (more…)

The China Effect: A Reply to The China Business Forum

Friday, February 3rd, 2006

The China Business Forum recently (January 2006) released a report titled “The China Effect” that claims “the long-term benefits to the United States of Trade with China are substantial and likely to endure (Executive Summary).” The top line conclusion of the report is that the average US household stands to be one thousand dollars better off by 2010 as a result of lower prices and increased productivity in the U.S. due to the China effect. The bottom line take-away from reading the report is that it is flawed and misleading. Here is why. (more…)

Exchange Rates, Labor Standards, and Democracy: Why China Must Change

Saturday, December 10th, 2005

For the past five years the global economy has been flying on one engine. That engine is the U.S. consumer who has been on a consumption binge financed by borrowing, in turn backed by a housing price bubble. This situation poses the threat of a serious hard landing when that engine eventually stalls, as it must. Ever inflating house prices and rising debt-to-income levels are not sustainable. And as the late Herbert Stein, Chairman of President Nixon’s Council of Economic Advisers, wryly observed: “If something cannot go on forever, it will stop.” (more…)