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  • Chinese Currency Manipulation: Lies and Statistics

    Unemployment Rate: May 2011

    There’s a very old political rule getting a new twist in the House of Representatives right now: When your policies fail, blame someone else. The new twist is: When unemployment is above the level you said would be a catastrophe, and you’re on the road to bankrupting the country in the meantime, start talking about Chinese currency.

    This is apparently the plan for congressional protectionists in 2011.

    There will always be Members and interest groups demanding that government restrict the ability of American consumers and firms to make their own trade decisions, just as there are Members and interest groups demanding government restrictions on a huge range of other private activity. Protectionism, though, is especially odd.

    In 2004, U.S. GDP grew 3.6 percent and unemployment fell to 5.5 percent. This sounds like a great year economically, but protectionists know otherwise. The trade deficit soared $123 billion, so it obviously must have been true that our economy was extremely weak. In contrast, in 2009, the trade deficit fell $325 billion—what an incredible success for America! If you happen to remember 2009 as something just slightly less than an incredible success, you simply don’t understand the great promise of protectionism.

    Given the bizarre reasoning protectionists employ, it’s not surprising they don’t understand U.S.–China economic relations. The PRC does, in fact, pursue policies that harm its economic partners. The most important of these are a variety of subsidies for state-owned enterprises that block American imports. And there are others.

    The Chinese Yuan's Value and US Unemployment

    But the exchange rate between the yuan and the dollar has no direct effect on American prosperity or American jobs. It never has. Seventeen years ago, China sharply devalued the yuan against the dollar. Yet American unemployment fell for years afterward. Since 2005, the PRC has been slowly raising the value of its currency, which is what protectionists say they want. And American unemployment has soared.

    The explanation is that there are many other, much more important factors that determine how the American economy is doing. A few of them are made in China, such as those subsidies for state enterprises. Most of them are made right here—as we should expect, given that the U.S. economy is two-and-a-half times bigger than the PRC’s. We control our own destiny.

    This, of course, is what’s actually behind demands to punish China for its currency policy. It’s American policies—chiefly an incompetent federal government—that have caused our unemployment to spike.

    There are lots of people in Washington whose careers depend on avoiding responsibility for anything. China is an easy target and currency manipulation an easy slogan. Calls to tax trade don’t make any more sense than calls to tax domestic activity. The exchange rate has been proven (and is being proven right now) to be unconnected to American jobs. But never mind all that. To paraphrase, we must blame China and cause a fuss before someone thinks of blaming us.

    Posted in Energy [slideshow_deploy]

    5 Responses to Chinese Currency Manipulation: Lies and Statistics

    1. Stirling says:

      It's easy to see the manipulation people China is a State run (communist) Captialist system, those that belive it's a True capitialist system will be in for a rude awakening when it all crashes. China laughs at our economic policies because they see us moving away from what was a working free market to a Government run joke of a financial system. Any time a government owns or runs an economy they have no accountablity and can fake any numbers to make people belive what is not true.

    2. Bobbie says:

      Totally agree with you, Stirling! It's like the only thing wrong with the world is the leadership.

    3. GOPNYC says:

      You can always count on Heritage to get global economics wrong. They used to bash Ronald Reagan, too, back in the day, when he stood up to Japan's unfair trade practices.

      Elsewhere on the web, Dr. Scissors acknowledges Chinese renminbi manipulation, acknowledges that China's won't change and says, basically, "its America's problem". And he asserts that anyone who dares challenge China's unfair practices is a "protectionist", just as Heritage and CATO accursed Reagan of being a protectionist when he protected Harley Davidson and American steel manufacturers from Japanese dumping.

      America can impose a tax Renminbi/Dollar conversions or go into the foreign currency market to counteract China's currency manipulations without a dint of "protectionism". China's going to have to adjust soon anyway; they have people rioting at the inflation caused largely by the currency manipulation.

    4. John says:

      This guy's got a PhD? Did it come with a Happy Meal?

    5. Tadie says:

      U.S. Views on China currency:
      By Tadie
      In America, the popular opinion now is that China cost us jobs, millions of them. I would say that is true. But, China has also kept interest rates low here ( by financing our massive government spending ) as well as supplying with inexpensive goods ( keeping inflation low ). You won’t hear that side of the argument here – it’s not what people want to hear. It’s not what the politicians or media “spin” in their message.
      To Americans its easy to say its China’s fault. In part it is, but American management and politicians instigated the problem.
      In general, in America, we just need somebody to blame. It’s the American thing to do.

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