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Janet Carmosky: “China Bashing Season Officially Kicks Off”

September 12th, 2011 Leave a comment Go to comments

Below is a recent article written by Janet Carmosky appearing at the Forbes. I simply liked the way she articulates what’s wrong with the American narrative about China – both in their elections as well as in their media.

Sep. 8 2011

China Bashing Season Officially Kicks Off

In the past 24 hours both  Mitt Romney and House Democrats have unleashed the threat of labeling China as a Currency Manipulator. There is talk of employing sanctions, of taking steps to launch the mother of all trade wars.   Let’s be clear: in the event of a “divorce” of the G2, everyone suffers.

It’s primary season, though.  Republican or Democratic, the rhetoric implies we have a moral imperative to punish China for its economic success.  Although we bought the goods that gave China a trade surplus, and sold the T-Bills that allow them to hold 8% of our total deficit, the implication is that Beijing has foisted an agenda hostile to the USA upon us, and must be stopped from continuing, even if stopping them destroys US-China relations.

No place in this narrative for the fact that China is by far the USA’s fastest growing export partner;  nor that a faster devaluation of the Yuan raises the risks of a financial crash in both nations, hence the world overall. The two nations are in this together.   A trade war would be damaging all around. Will the satisfaction of  having a clear enemy (that isn’t us) be worth it?

Moral indignation may play well on the podium; recognize however, that to the extent we view economics as moral philosophy, we must also allow that it is subject to different interpretation in different cultural contexts.

Namely, in the Chinese view, a) capitalism is not morally superior to socialism, it just works better and b) democracy isn’t better than single party rule because it liberates individual thought, but there is evidence that allowing election mechanisms (where all candidates are qualified to lead, of course)  correlates to regime longevity. China’s partial and inconsistent implementation of western economic and financial disciplines is self-serving, but it isn’t proof that the USA has the moral high ground.

The Wealth of Nations, the original capitalist manifesto,  proposes that market mechanisms are conducive to a prosperous society. Thing is, in the Western view, society is more about individuals than governments. Chinese, by contrast, in 5000 years of history, have lived through almost 2000  years of of war –  international and civil – and come to the conclusion that the existence of a strong State correlates to  freedom from starvation and invasion, to good infrastructure and a healthy population.

Bottom line, China’s success would hurt less if we had a plan.  We’ve been running the economy on consumption and now the middle class is broke. We’ve been creating wealth through financial markets, but our markets ended up facilitating wealth destruction for the general population.

China may have been part of getting us to this point but I’m pretty sure it takes two to tango. China’s currency policy, nor its actions as a whole, are  not responsible for the USA’s lack of effective industry incentives, infrastructure investment programs, or a long term energy or development strategy. They may be the beneficiaries of a public sector that serves to create national wealth, but they are not responsible for the gridlock in our political system, or for the Tea Party-led civil war against our public sector. That’s all us.

Here’s an idea. Let’s take a page on self-preservation from the ultimate survivors – the Chinese, that nation that is out-performing us economically. If we really want to regain ground relative to China, if we want to stand up to the Chinese in self-preservation, invest more in America.  Deficit spend on jobs and infrastructure.  Like a trade war, a higher deficit will force a rise in the Yuan, and create all kinds of global financial backlash. But at least we’ll have something to show for it – like jobs and investment promotion programs.

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  1. raventhorn2000
    September 12th, 2011 at 15:03 | #1

    Unfortunately, another lesson in Chinese history may enlighten on the current American mentality:

    A State that is a superpower becomes complacent in its future, and thus, begins its downfall.

    Like the Chinese people during the height of its former powers, the Americans now do not consider to rethink their world view, reexamine the fundamental assumptions of their own beliefs.

    Until Americans are confronted with the chaos of internal strife, they will not draw new lessons.

    And America is not yet at the stage of Chaos. No one can hasten that Chaos other than themselves.

  2. September 12th, 2011 at 15:32 | #2

    Mitt Romney attacking China on the currency issue in hopes to garner more votes really goes to show how much of this ‘manipulator’ propaganda Americans have been exposed to over the years at home.

    The irony of this is that China is indeed strengthening her currency and using it more internationally in trade settlements. Her efforts in internationalizing the RMB is actually being assisted by the constant printing of the USD!

    One day we will see these politicians and media calling for China to devalue the RMB. Be on the look out for new propaganda then.

  3. September 13th, 2011 at 09:52 | #3

    And what exactly is the correct exchange rate for US$/RMB?

    US$1= RMB 6
    US$1= Yen 75
    US$1= Won 1075
    US$1= NT$ 29.5

    So how exactly are those currency not undervalue compare to RMB? Those who continue parroting that the RMB don’t know what they are talking about. And why is no action taken on Japanese and Swiss govn’t in selling their own respective currency holding to keep their value low.

    I remember when China started economic reform, it was US$1 = RMB 2 but the US kept saying RMB is over value and forced China to revalue it to RMB 8.

    And of course the biggest currency manipulator is none other than the US. I actually hope to see a tariff being put on Chinese goods. In a month or two they will find the situation untenable and put this issue to rest once and for all. Like I have said many times, if a country like US instead of trying to compete with EU or Japan, Korea, Taiwan etc, focus on trying to manufacture dollar shop or OEM items, they would fail big time.

  4. September 13th, 2011 at 16:42 | #4

    @Ray
    Japan was trying to devalue the Yen when it inched towards the 90 Yen per USD mark. I remember a barrage of attacks on the Japanese government in the U.S. press around that time (I couldn’t remember if it was earlier this year or some time last year or shortly before).

    At 70 Yen now, I have little doubt Japan has been told to cooperate with U.S.’s QE plans in the same way like they were made to accept the Plaza Accords.

  5. September 13th, 2011 at 17:51 | #5

    @YinYang
    I was talking about this year after the Tsunami hit. The G-7 actually help the Yen devalue to avoid a recession. And recently Switzerland also pegged the France to the Euro and Dollar.

    My point is when the EU and US did it, it is ok but when China does it for its own reason it is not ok. Basically, the EU and US want to have the final words on what is allowed or not.

    Yes, Japan, except for a brief period during the 1980s have always been obedient to the US.

  6. September 13th, 2011 at 22:02 | #6

    @Ray
    Understood.

  7. xian
    September 14th, 2011 at 01:09 | #7

    Except investing in America isn’t as profitable or even cost effective. That’s where the whole thing falls apart. Just like all the “revive America” plots, all rhetoric and no strategy.

  8. raventhorn2000
    September 14th, 2011 at 05:31 | #8

    It’s a financial political leverage, but there are always opportunities in investing in US that would get around the disadvantages of the political system.

    For example, massively import Chinese system, manpower, and culture, and manage from safehaven in China.

    I suspect China may invest in Italy, as Italy requested, but it will require Italy’s “cooperation” in allowing Chinese operation their own ways.

    It’s kinda like how Japanese automakers “invested” in US, by building factories in non-unionized states and importing Japanese corporate culture/system wholesale. Those factories did become somewhat profitable, and provide jobs in US. (But it required basically US’s capitulation on many political issues, such as Unions and wages).

  9. silentvoice
    September 14th, 2011 at 07:43 | #9

    Here’s a good article by Paul Kennedy on the currency issue:

    http://www.nytimes.com/2010/09/30/opinion/30iht-edkennedy.html?_r=1

  10. September 14th, 2011 at 08:42 | #10

    Bank of America made a cool $5 billion after selling half their stake in China Construction Bank.

  11. jxie
    September 16th, 2011 at 09:16 | #11

    When BoA acquired those CCB shares, in retrospect at a huge discount, see what Michael Pettis had to say about the Chinese banks’ values. Quite frankly as far as prediction goes, Pettis is right up there with Abby Joseph Cohen — if you assign anything more than comic relief value (or moral support to your losing position or worldview) to their opinions, you are duped.

    Roughly at the same time, Jim Rogers was shorting Citibank, Freddie and Fannie. If you can only pay attention to one person in the world, Mr. Rogers is someone you should listen to.

  12. September 16th, 2011 at 11:01 | #12

    @jxie
    Interesting connection you drew here. Thanks.

  13. September 18th, 2011 at 07:11 | #13

    I totally agree with xian completely.

  14. silentchinese
    September 19th, 2011 at 10:52 | #14

    It takes both side to be responsible to have a good partnership.
    so if Americans don’t trust their politicans to be responsible for their own country, why would they be responsible towards relationship with China??!!!

  15. silentchinese
    September 19th, 2011 at 12:17 | #15

    And Hats off to Janet Carmosky for recognizing the ultilitarian nature of economic models.
    namely this part:

    “Namely, in the Chinese view, a) capitalism is not morally superior to socialism, it just works better and b) democracy isn’t better than single party rule because it liberates individual thought, but there is evidence that allowing election mechanisms (where all candidates are qualified to lead, of course) correlates to regime longevity. China’s partial and inconsistent implementation of western economic and financial disciplines is self-serving, but it isn’t proof that the USA has the moral high ground.”

    I am glad that some body finally said it in the mainstream western media.

  16. jimmy
    September 23rd, 2011 at 09:49 | #16

    US perennially and unwaiveringly hateful stance towards China has forced the country to waste precious resources fending off the evil US attacks when the resources could be far better used to improve many areas in the land. Read more about the very endless mean behaviour of the US at http://www.scribd.com/jimmyfung40 and understand better ! Thank you.

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