For seven years, the United States has allowed its fixation on the renminbi’s exchange rate to deflect attention from far more important issues in its economic relationship with China. The upcoming Strategic and Economic Dialogue between the US and China is an excellent opportunity to examine – and rethink – America’s priorities…

“Enough is enough,” President Barack Obama replied, when queried on the renminbi in the aftermath of his last meeting with Chinese President Hu Jintao. Obama’s presumptive Republican challenger, Mitt Romney, has promised to declare China guilty of currency manipulation the day he takes office.

But, however appealing this logic may be, it is wrong…America’s trade deficit is multilateral: the US ran deficits with 88 nations in 2010. A multilateral imbalance – especially one that it is traceable to a saving shortfall – cannot be fixed by putting pressure on a bilateral exchange rate…

…China has evolved from the world’s factory to its assembly line. Research shows that no more than 20% to 30% of Chinese exports to the US reflect value added inside China. Roughly 60% of Chinese exports represent shipments of “foreign invested enterprises” – in effect, Chinese subsidiaries of global multinationals…

Rather than vilifying China as the principal economic threat to America, the relationship should be recast as an opportunity…Exports top the list of possibilities. China is now America’s third largest and most rapidly growing export market. There can be no mistaking its potential to fill some of the void left by US consumers…

For a growth-starved US, the opportunities of market access far outweigh the currency threat. The long-dormant Chinese consumer is about to be unleashed. This plays to one of America’s greatest strengths – its zeal to compete in new markets. Shame on the US if it squanders this extraordinary chance by digging in its heels at the upcoming Strategic and Economic dialogue.

RTFA for details, more analysis.

We’re bracing ourselves for $2 billion worth of electoral agitprop over the next 6 months. The bilateral relationship of American and Chinese currency will be left to the usual hackneyed phrase-mongering…but, there is a greater need for honest dialogue as proposed by Stephen Roach in this article. Now that he’s retired from Morgan Stanley Asia, I expect we’ll get to hear deeper analysis less focused on investing and more concerned with rebuilding our national economy in a world of global commerce.

I suggest we might pay attention.



  1. nixon's the one says:

    Roach chose to teach at Yale instead of someplace patriotic like Oral Roberts Universiturkey?

    Harumph.

  2. Back Atcha says:

    RTFA? How ’bout you SIUYA.

    • Gildersleeve says:

      Thank You! I generally see ‘RTFA’ as “I haven’t read it, either but can’t admit it’.

      A link to the article on it’s own line will suffice, editors – we already know you think we’re all a bunch of reactionary idiots.

  3. dusanmal says:

    “America’s trade deficit is multilateral: the US ran deficits with 88 nations in 2010” – 87 of which do not have currency artificially linked to the dollar. Deficit in trade is result of BOTH importing too much from the place and exporting too little there. It can’t be solved by addressing only one or the other. Increasing export and making China obey market driven exchange rate system are both needed (latter will have effect of importing less from them).

    • Gildersleeve says:

      I would agree with that, but that would mean that the US consumer would both have to stop buying Chinese made goods, and telling our corporate overlords to stop selling Chinese made goods to anyone but the Chinese. (Meaning bring manufacturing back home). We’ll be told 6 ways from Sunday how that just won’t work.

    • ECA says:

      And HOW would our corp(fronts orgs) deal without Low wages on the bottom, and high Wages on TOP??
      They CANT..

  4. chuckie says:

    Ah. We hear from the Republican bottomfeeders intelligentsia.

  5. chuckie says:

    #2, that is.

  6. nixon's the one says:

    DM should look beyond his ideology once in a while – the first two currencies that come to mind in forex that are pegged are the Swiss franc and the Saudi riyal. Of course, only the latter is pegged to the dollar. The Swiss peg to the euro. There are more of course. The Hong Kong dollar and more.

    Cripes. Read something by economists once in a while.

  7. Derek says:

    Yay! Reading “renminbi” made me think of Lethal Weapon 4!

    There you go. Money losing face. General losing face. Very hard when Triad tried to sit on it.

    http://www.hark.com/clips/xdhtcmmdsf-very-hard-when-triad-tried-to-sit-on-it

  8. bobbo, the pragmatic existential evangelical anti-theist says:

    The long-dormant Chinese consumer is about to be unleashed. /// Yea I know GM sold more Buicks in China than in the US (or at least a lot of them?) but isn’t the general “issue” with China that the average consumer is a subsistence wage slave? Thousand of workers/slaves///aka consumers working in FoxConn factories and they can’t afford the IPad they just assembled? Sure, a nitch here, a nitch there but how can we sell anything to China when we don’t make anything??

    Meanwhile, USA still giving tax adavantages to companies that outsource, we don’t enforce fair competition regulations against China, Investment Banking has not been re-regulated, No one worth more than 1.50 is prosecuted for anything, and the downward spiral continues.

    Same as it always was.

    • deowll says:

      They are wage slaves that normally save 30% + of what they make rather than spend everything they make and pay interest on loans which actually ends up limiting how much you can spend.

      China is supposed to be wanting to grow its domestic markets however that means they will buy GM China not GM US.

      Food imports are a slightly different story but of course the EPA, and other regulators are going to be out front throwing up every road block and cost enhancer they can think off.

      • msbpodcast says:

        Food imports are a slightly different story …

        Tried buying garlic that not from China lately?

        They’re tearing their hair out in Gilroy California over cheap Chinese imports and its just fuckin’ garlic for god’s sake.

        Seen what’s happening to Gulf shrimp? They’re being out competed by Asian tiger shrimp which grow to the size of your hand and more.

        Florida rock lobster wont be worth a damn in a year.

        To paraphrase Vladimir Ilyich Ulyanov, aka Lenin, capitalists will haggle amongst themselves over the price to charge for the rope to hang themselves with.

  9. Drwally says:

    Article is dead on. The republicans want to fight the old cold wars again. China is not an enemy in the sense of down a gun barrel – they are a powerful and potent competitor. They are also a natural market for American products. The south Pacific is no longer an American lake. Face reality as it is – not as it was or as you wish it were.

    • deowll says:

      China is one of the Great Super Powers. It has been around for thousands of years and it doesn’t think highly of the stupid incompetent lack witted fools running the US. In their view it was more or less an accident the US ever became a world leader.

      They have their own game book and by that book they should _dominate Asia_ and be an equal or better to any other other power anywhere. If something about that bothers you get over it.

      In their book none of Obama’s meddling in the domestic affairs of the middle east should have occurred. Not sure about Afghanistan because Afghanistan meddled first.

  10. moondawg says:

    As an American living in Beijing, I can tell you that the demand for American products is very real. My co-irkers were all very impressed with my company-provided Buick Minivan… and perplexed as to why I couldn’t (or more importantly: wouldn’t) buy a Buick minivan in the US.

    The middle class is exploding here and the prices are climbing rapidly. It will be increasingly possible to export US branded products to the US.

    HOWEVER… smart companies are figuring out how to make products that fit the Chinese market, make them here, and leverage their US brand-name to make the sale.

    It is difficult to bring US product-makers around to this line of thinking: Why should I drive quality out of my product? Because initial cost is king. The ever-increasing middle class here can only focus on “attainment” … quality rarely enters into the buying decision. If a buyer had to consider both initial cost AND quality, they would never be able to save enough to keep up with the cost of products.

    American companies that can learn how to build china-specific versions of their American products are going to be very, very successful here.

    • msbpodcast says:

      The quality issue was a problem and a major issue until the Japanese learned about statistical sampling from William Deming.

      The Chinese are about the same stage of domestic industrial development as the Japanese were in 1950, when Deming made his appearance in Japan.

      It only took two decades that time for the entire ethos of the Japanese industry to turn around and for “Made in Japan” to go from meaning crap to meaning quality.

      It won’t take 20 years for the Chinese to get that, “you can charge more for quality” message because they can already see that they can produce quality goods. They’re already doing it in their sino-maquiladoras.

      I’m just waiting for Jonathan Ives to move from the ‘States to China and open an industrial design school named after him. (Why not? He already made a similar move from England to the ‘States to come and work designing products for Apple.)

  11. dadeo says:

    Blame whoever..but does anyone really trust banks anymore, whatever their nationality?

    • msbpodcast says:

      Nobody trusts banks anymore.

      The last time is happened, it cost us 18 trillion dollars and ruined the world economy. I remember it like it was 5 years ago, oh wait, it was 5 years ago. (See the Frontline special part 1 and stick around for part 2)

      The time before that was in 1920s. That took us from 1929 to 1942 to recover from.

      The worst, the absolute worst thing Clinton ever did was getting rid of the Glass-Steagall Act which we’d put in place the previous time the banks went into a positive feedback loop.

      Any electrical engineer can tell you that positive feedback is destructive.

      Any bridge designer or civil engineer can tell you that positive feedback brought down the Tacoma Narrows bridge.

      Any audio engineer can tell you that only Jimmy Hendrix could ride that edge of chaos after which your amplified instrument sound goes to shit.

      Positive feedback is always, always, always destructive.

      Bankers are stupid, ignorant [expletive deleted] who think that money will make water magically flow uphill.

      It doesn’t. It never has. It never will.

      Positive feedback has always, always, always been destructive.

  12. msbpodcast says:

    Mitt Romney, has promised to declare China guilty of currency manipulation the day he takes office.

    Like fuck he would, even if he got in, specially if he got in.

    The Chinese are pegging the renminbi to the US dollar because they can afford to do it.

    Mittens has fuck-all to say about it.

    If the POTUS makes too much noise, they’ll just call in their markers, stop selling to us, and we’d be fucked.

    Wal*Mart would collapse in a month without the constant stream of cheap goods from China.

    That’s a whole lot of Wal*Mart employees thrown on the unemployment line, and they’re going to be leading the torch and pitch-fork brigades, followed by the military who are waving ‘bye bye’ to what they could afford to buy, followed by Joe Sixpack who’s in the same shoes.

  13. ECA says:

    Want an interesting solution??

    START ROBBING BANKS…
    take the money outside and BURN IT..
    that wont work, as the banks are Backed by the gov..

    OK.
    FIND a way to get RICH persons money/corp money and BURN it so that its NOT INSURED..(wont happen)

    • msbpodcast says:

      Banks, 1%er institutions all, create money just by borrowing it, from the Fed, and lending out 9 times as much money as they borrowed.

      At least that’s how it used to work before the repeal of the Glass-Steagall act.

      Then the banks all got into these strange financial instruments which seemed to be doing well, and then seemed to be doing better, right up until they started doing spectacularly badly. Derivatives are curves on curves.

      The original curves were futures markets on agricultural commodities, then they became curves on bets on bundling of mortgages and other mortgage backed loans (insecure securities,) in baskets which were sliced diced and puréed in tranches.

      That was pure fraud, gambling and scheming and who ever was slow to get off that boat was going to take it in the shorts.

      But since they were banks, tools of other 1%ers, the government couldn’t them fail so they stuck the 99%ers with the tab and the world’s economy went to hell in a hand basket wile the pricks were pissing on the OWS protesters and extorting bigger bonuses for themselves.

      The truly rich, the ones who call the 1%ers on the carpet when the economy goes south, lend their assets for the Fed to use.

      The 12,400 don’t soil their hands with specie. What currency would they be using?

      They will be paid and they don’t care that people are dying, setting themselves on fire and blowing their brains out because their on the hook for the debts that the inept, venial and greedy 1%ers ran up.

  14. sargasso_c says:

    Chances of a Mitt scented White House are low. Accusing China of currency manipulation is a joke if not hypocritical considering that the NYSE is actually in the USA. America makes badges to put on Chinese products and badge making is all about credibility. Which is the currency of politics.


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