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Say it isn’t so – NY Times reports China is manipulating their currency

March 15, 2010

Seeking to maintain its export dominance, China is engaged in a two-pronged effort: fighting protectionism among its trade partners and holding down the value of its currency.


In addition, Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.

China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.


I’m pretty sure I have heard this before – (here, here, here, and here)

Paul Krugman joins in

Widespread complaints that China was manipulating its currency — selling renminbi and buying foreign currencies, so as to keep the renminbi weak and China’s exports artificially competitive — began around 2003. At that point China was adding about $10 billion a month to its reserves, and in 2003 it ran an overall surplus on its current account — a broad measure of the trade balance — of $46 billion.

Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed.

And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.

Make no mistake – this is a warning shot by the administration being fired at the Chinese. They are telling them that if there isn’t some sort of agreement reached by April 15th China will be declared a currency manipulator. Most people think that the US won’t do so because China hold so much US debt. Krugman disagrees

If Treasury does find Chinese currency manipulation, then what? Here, we have to get past a common misunderstanding: the view that the Chinese have us over a barrel, because we don’t dare provoke China into dumping its dollar assets.

What you have to ask is, What would happen if China tried to sell a large share of its U.S. assets? Would interest rates soar? Short-term U.S. interest rates wouldn’t change: they’re being kept near zero by the Fed, which won’t raise rates until the unemployment rate comes down. Long-term rates might rise slightly, but they’re mainly determined by market expectations of future short-term rates. Also, the Fed could offset any interest-rate impact of a Chinese pullback by expanding its own purchases of long-term bonds.

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.

AP has a related story

American politicians, however, have calculated that raising China as an economic boogeyman can help them connect with voters afraid of losing work to foreign competitors.

“They take our markets and take our jobs,” Democratic Sen. Arlen Specter said of China when he confronted Obama at a public meeting last month. Specter, who is in a tough primary race in the Rust Belt state of Pennsylvania, said Chinese subsidies and what he called dumping are “a form of international banditry.”


Lawmakers have called on Obama to investigate China’s currency practices and have advocated penalty tariffs on Chinese imports if Beijing doesn’t make changes.

Obama has responded by vowing to get tough with China, saying that currency manipulation “puts us at a huge competitive disadvantage” and pushing for Chinese movement “to a more market-oriented exchange rate.”

Lawmakers will want to see action to back up those words. So far, however, Obama has followed the Bush administration’s lead by declining to name China as a country that manipulates its currency to gain unfair trade advantages. Such a designation would trigger negotiations and could lead to economic sanctions if the United States took a case before the World Trade Organization. Congress will be watching closely next month, when the Obama administration must submit another report on Chinese currency manipulation.

Liam Halligan takes the opposite view –

It’s also not clear that China’s currency is “under-valued” by all that much. Despite the peg, the yuan is 20pc higher than in 2005. This flies in the face of claims that the fall is America’s share of global exports – from 23pc to 18pc over the last five years – has happened because the yuan hasn’t been allowed to rise. But, then again, blaming foreigners is easier than restructuring clapped-out, bloated and heavily-subsidised Western factories.


The president is playing with fire. For one thing, his country is being kept afloat by China’s willingness to keep buying US government debt. Obama really should tread carefully. At the same time, the US is now at risk of sparking what could be an all-out trade war.

The reality is that America’s “weak dollar” policy – its long-standing practice of allowing its currency to depreciate in order to lower the value of its foreign debts – amounts to the biggest currency manipulation in human history. At the same time, the US has, for years, shamefully stalled on various rulings passed by the World Trade Organisation that show America to be breaching global trade rules.

Chinese inflation is now at 2.7pc – close to the official 3pc target. Beijing will eventually allow the yuan to rise, but in its own time and in order to tackle inflation and not because of US pressure. America needs to act smarter and get its own economic house in order. Obama has decided instead to lash out at China in a desperate attempt to placate a US electorate increasingly mindful of their president’s failings.

I have to say that Halligan’s piece reads like it was written by the Chinese embassy.


Curses! Foiled again! has the story of a lesbian discharged from the Air Force because cops got vindictive. (XBradTC tipped me on this but it got spam filtered. Sorry)

Petraeus – Israel is hurting us strategically in the Middle East


The Economist weighs in this morning with “The best thing American politicians can do to encourage a stronger Chinese currency is keep calm”

Their premise is that China is resisting letting the Yuan appreciate merely to be showing strength against the US and that attempts to getthem to change are counter productive –

Will the administration’s new tough talk move things in the right direction? Those who argue in favour of sabre-rattling do so on two grounds: first, that it is likely to shift China’s position, and second, that a stronger stance against China’s currency from the White House will diffuse protectionist sentiment in Congress. Both are dubious. China’s reactions so far suggest that American complaints make an imminent currency shift less, not more, likely. And a row could spur rather than diffuse anti-China action in Congress.

Rather than raising a bilateral ruckus, America would be far better off convincing other big economies in the G20 to press together for a yuan appreciation as part of the world’s exit strategy from the crisis. Cool and calm multilateral leadership will achieve more, with fewer risks, than a Sino-American currency spat.

The problem with the Economists soultion is the Chinese don’t think they are doing anything wrong and have been resisting this sort of pressure for years. The only way to force the issue is to brand them as a currency manipulator and raise tarriffs on their products. When Wal-Mart stops buying Chinese goods (Wal-Mart is China’s single largest non-government customer) you will see some major changes. I don’t agree with Krugman on much but I think he may be on to something this time.

11 Comments leave one →
  1. xbradtc permalink
    March 15, 2010 10:27 am

    I’m not at all sure the cops were vindictive. Remember, marrying or attempting to marry a member of the same sex is a violation of the federal law behind DADT policies. When a law enforcement agency comes across a violation of law, if it falls outside their jurisdiction, don’t they have some obligation to inform the appropriate agency?

    • jenn1964 permalink*
      March 15, 2010 11:21 am

      Well I would say yes normally, but this is one of those ares where it’s a how much do you want the cops in your life thing, but beyond that this is what the article says –

      The Rapid City Police Department says Newsome, an aircraft armament system craftsman who spent nine years in the Air Force, was not cooperative when they showed up at her home in November with an arrest warrant for her partner, who was wanted on theft charges in Fairbanks, Alaska.

      Newsome was at work at the base at the time and refused to immediately come home and assist the officers in finding her partner, whom she married in Iowa — where gay marriage is legal — in October.

      Police officers, who said they spotted the marriage license on the kitchen table through a window of Newsome’s home, alerted the base, police Chief Steve Allender said in a statement sent to the AP. The license was relevant to the investigation because it showed both the relationship and residency of the two women, he said.

      Really a Marriage license was just laying on the kitchen table and the cops just happened to read it? Sorry I don’t buy it. IN my mind they were pissed so they liiked for a way to get her. They already knew the 2 women were living together because they were there to search the house. My bet is they did a public records search and knew they were married.

    • March 15, 2010 3:38 pm

      “Remember, marrying or attempting to marry a member of the same sex is a violation of the federal law behind DADT policies.”

      Just out of curiosity, which law is that specifically? Is it DADT itself, or the UCMJ, or something else?

      I’ll admit I’m not really familiar with the actual wording of the DADT law – is it a blanket “don’t be gay, Sparky” that would ban any homosexual activity, or just a “don’t let us find out?”

      • March 15, 2010 4:18 pm

        Okay, less than five minutes of research on the internet and I just answered my own question. It is a blanket “don’t be gay, Sparky” law.

        10 U.S.C. 654(b) – A member of the armed forces shall be separated from the armed forces under regulations prescribed by the Secretary of Defense if one or more of the following findings is made and approved in accordance with procedures set forth in such regulations: (1) That the member has engaged in, attempted to engage in, or solicited another to engage in a homosexual act or acts […] (3) That the member has married or attempted to marry a person known to be of the same biological sex.

        So, yeah, pretty specific violation there. But like I said, there was no point in the police reporting it except for harassment. And I still stand by the conclusion of my original post – though a small update is in order, and will happen shortly.

    • March 15, 2010 4:01 pm

      Oops, should have addressed this in my last comment:

      “When a law enforcement agency comes across a violation of law, if it falls outside their jurisdiction, don’t they have some obligation to inform the appropriate agency?”

      Legally, they may (it depends on how the law is worded in SD). In reality, cops use their own discretion and don’t report certain things they’re “supposed” to almost daily*. Gay marriage is the most victimless “crime” imaginable. There’s absolutely no purpose in reporting it to the military other than harassment.

      (* my favorite is when I go into a college student’s apartment on an EMS call and hear the officer tell someone “If that street sign shows up outside the town lot tomorrow morning, no one will ask any questions. Understand?”)

      • xbradtc permalink
        March 15, 2010 4:28 pm

        Jake, DADT- the law, is somewhere in Title 10, but I’m far too lazy to look for it. Congress has the Constitutional authority to regulate the services. The services in turn publish policies and regulations to implement the laws.

        DADT is, IIRC, technically non-punitive, so the maximum punishment is separation, tho if the services are pissed at you, they can try to hang a sodomy, adultery, or Article 134 charge on you.

        The regulations still prohibit homosexual conduct, “outing” yourself, unless you can show beyond a reasonable doubt that you will not engage in homosexual conduct while in the service (good luck), marrying or attempting to marry a same-sex member (which is what got this troop in trouble).

        Since the DADT part itself is nonpunitive, and considered administrative, what happens to you is basically up to your CO. If he thinks you engaged in homosexual conduct, he can toss you. The rules of evidence are very loose.

        In real life, in 12 years of service, I only saw one guy get tossed for DADT, and he wasn’t gay, he just wanted out. That’s where a most discharges come from, either people that want out, or people that want to make a statement.

  2. xbradtc permalink
    March 15, 2010 11:35 am

    Yeah, the “through the window” was bullshit, and they probably did do a records search. But dropping a dime? Well, the “drop everything and come here now” line was a bit of a crock. It’s not like the service lets you just up and leave.

    But you’ll notice she’s not complaining to the Air Force, because she’s got no leg to stand on there.

    • jenn1964 permalink*
      March 15, 2010 12:26 pm

      Oh I agree she doesnt have a leg to stand on with the AF, at least at the moment although the DADT review may change that.

  3. xbradtc permalink
    March 15, 2010 3:29 pm

    I think she’s screwed. One, she’s already out (of the AF, that is) and second, the marriage is a rather bright line compared to a lot of other actions.

  4. jenn1964 permalink*
    March 15, 2010 4:27 pm

    Glad you found the answer Jake. I was away awhile and just saw the commenst or I would have responded earlier.

  5. March 15, 2010 4:45 pm

    “When a law enforcement agency comes across a violation of law, if it falls outside their jurisdiction, don’t they have some obligation to inform the appropriate agency?”

    Thinking on this point some more, since it’s just administrative and not a criminal violation, I doubt they had any legal obligation to report it. I’m pretty sure that would be governed by state law, and most states tend to limit “required” reporting to felonies and certain specific crimes (domestic violence, child abuse, etc.). I may be wrong – IANAL, and there may be a statute (federal or SD) that I don’t know about.

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