Flanking Maneuvers
Peter Navarro, a business professor at the University of California, Irvine, pens an op-ed in the Christian Science Monitor that should be required reading for Congress. With virtually nothing whatsoever of any real use going on in Washington at the moment while elected officials are busy striking poses for the cameras over Iraq, other things are going on in the world. Other nations actually do things in their own interest and against the best interests of the US. In other words, it isn't all about us.
Here's the clear and present danger: What may have started out as a simple mercantilist currency gambit for China to sell its exports cheap and keep imports dear has morphed into a powerful weapon to hold off any effective US response to China's unfair trade practices. And make no mistake: Such practices run the gamut from a complex web of illegal export subsidies and currency manipulation to rampant piracy and woefully lax environmental, health, and safety standards.
From time to time, US politicians have railed against these practices – and the collateral hollowing out of America that China's "weapons of mass production" have brought about. However, any time that the Bush administration or Congress threatens any kind of significant and tangible action – as opposed to simply beating its chest – China can now credibly threaten to stop financing US deficits and start dumping greenbacks.
This is a very credible threat. If executed, inflation, the costs of imports, and interest and mortgage rates would skyrocket. With higher housing costs leading the way, consumers would soon be overburdened. The result: a nasty stagflation shock.
Some say that the Chinese would never take such an action because it would hurt them as much as Americans. But it's Beijing's view that the Chinese people are far tougher and better able to withstand any economic shock than Americans who've grown soft living the good life – and they are probably right. Chinese officials also take a far longer view of strategic action. So if a "dump the greenbacks" strategy needs to be implemented to break the back of a rising American protectionism, to secure Taiwan, or to achieve any other strategic goals, sobeit.
That's the snapshot right now – and it goes a long way in explaining why the Bush administration, and particularly Treasury Secretary Henry Paulson, have taken such timid actions in dealing with this threat.
But the long-run picture is even scarier. In the next five years, as China's foreign reserves hurtle toward the $2 trillion mark (and perhaps as China begins to allow its currency to appreciate somewhat), the Chinese government and its many state-run enterprises will be in a very strong position to go on an acquisition binge for US companies.
There is a need to watch more than one thing at once in Washington. That appears to have been lost in the fixation of Congress to try to take over as Commander in Chief of the military. China is following a course that could have serious consequences for this country. And as Navarro points out, if American companies are taken over, it will be by the Chinese government, not private businesses. Think hard about that, folks.
Economy, World news | Gaius Monday, 26 February , 2007
By cfaller96, Monday, 26 February , 2007 @ 12:35 pm
Gaius, are you seriously suggesting that it’s Congress’ (and implicitly, Democrats’) fault for this situation.
We have been building huge trade deficits with China for years. Indeed, our deficits (that restarted during the Bush Administration) have grown to horrific levels due to the Iraq War, and have been increasingly financed by foreign investors, and thus increasingly by China.
If we want to have even a hope of getting back to a more stable financial situation with China, we have to go back to balanced budgets. That means repealing the tax cuts given to the wealthy during the Iraq War, and yes, getting out of Iraq.
If you want us to think hard about this, Gaius, then even you have to recognize the role the Iraq War is playing here.