Geithner and Beijing

by Don Boudreaux on May 30, 2009

in Trade

Here’s a letter that I sent a couple of days ago to the Wall Street Journal:

You report that Treasury secretary Timothy Geithner is “planning to press Beijing to take drastic measures to turn China’s economy into one that depends heavily on sales to domestic consumers and less on sales to the U.S.” (“U.S, to Urge China to Shop, Not Save,” May 28).  In other words, Mr. Geithner will press the Chinese to take drastic measures to diminish their success at serving American consumers.

When business executives collude to restrict the amounts that they offer to sell to us, they’re in violation of antitrust statutes and are often charged as criminals (even though such collusion is unlikely to work).  But when government officials operate to achieve the very same outcome – i.e., reduced supplies available to consumers – these officials are portrayed uncritically, even heroically, as crafting “trade policy.”

Donald J. Boudreaux

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Neal W. May 30, 2009 at 10:10 am

What does he think this will accomplish?

Dijo May 30, 2009 at 10:15 am

Noob question. Why do you say that such collusion is unlikely to work? Even a link to any past article of yours that explains this would be most welcome. Thanks.

BoscoH May 30, 2009 at 10:28 am

Dijo… Collusion is unlikely to work without the force of law (e.g. government) backing it. If a group of oligopolists collude to keep the price of some product high and the product can be sold profitably for less, it will make sense for some other company to invest in selling at the lower price.

You can find lots of posts on anti-antitrust by clicking the Antitrust. A good one to start with might be this one.

Kevin May 30, 2009 at 10:31 am

Dijo I don't think Don said the collusion is unlikely to work. I think Don believes, and I share this belief, that it will work. Anticompetitive measures almost always work when states enforce them and particularly when states craft and enforce them. And they always destroy value. A good rule of thumb is that if an anticompetitive measure does not destroy value, it hasn't worked.

mike farmer May 30, 2009 at 10:47 am

Two things to consider when using a utilitarian approach to determine if something works — does the end justify the means? what are the consequences?

muirgeo May 30, 2009 at 10:51 am

Hey, the Chinese government fixed the rules and it seems to have helped them quite a bit.

The idea that communism is OK as long as we can profit from it coming from libertarian thinking people blows my mind. Especially when we aren't even profiting from it… our economy is in the tank in good part do to these trade inequities. Next up…. as a result of poor trade policy… inflation. But of course that will be chalked up 100% to Obama's stimulus package and not 30 years of unequal trade with communist and others.

I know, I know there are some books on trade I need to read. Apparently while ignoring the daily newspapers on the current state of our economy.

Sam Grove May 30, 2009 at 11:01 am

In the eyes of many, as a result of leftist language strategy, profit-making is the root of evil. Government, in this dialog, is good because it is non-profit.

Killing people in other lands is accepted because there is no monetary motive.

It may be a simply stupid as that.



Inflation is not a product of trade policy.
Generally rising prices are a result of currency devaluation or cost inflation (taxes), which are both a result of increased government spending, or a result of common factor scarcity.

Cheers May 30, 2009 at 11:14 am

No, muirgeo, you're right. We should base our assessment of our economic systems solely on the worst 10% of our experiences and chalk the rest up to trade and the free market without causative evidence. Populism is also the best way for government to function.

Also, trade with communists is inherently different from trade with other entities. There's just something more than the product and price… something icky about the whole thing. Never mind the fact that functionally China is nothing like a communist state.

muirgeo May 30, 2009 at 11:27 am
dg lesvic May 30, 2009 at 12:07 pm

Free market "combinations in restraint of trade" are always short run maneuvers, mere charades, to the participants themselves, merely opportunities to outfox one another, to stab one another in the back. Of course, each swears solidarity with the others, promising to forego competitive advantage for "the good of all." But not a one of them has any real intention of doing so. The intent is never to restrict one's own competitiveness, but always to lull the others into doing so, to set them up for the competitive kill. To the outsider the appearance may be that of fraternal harmony, but the underlying reality is fox eat fox competition.

But, if competing suppliers are beating each other to death, and must merge and raise the price in order to sustain the service, the lower competitive price at which it would have disappeared was as detrimental to the consumers as the suppliers, and the higher monopoly price as essential to the one as the other.

Cheers May 30, 2009 at 12:35 pm


I read the article, but the author seems to make the same 600 year old assumption that it's inherently good to have piles of money lying around, and bad to not have piles of money lying around.

I agree that debt-funded trade deficits are pretty stupid things to have, but that's not because trade is the problem. That's because debt is the problem.

If the US and China trade, and the US is a net importer, and exports tons of dollars to china who don't do anything of the money, I would imagine the supply of dollars would decrease, increasing the value, and by consequence, enabling the US to export less, and import more.

It seems to me that the problem would arise if the US decides to fund the trade deficit via debt (borrowing back dollars for spending) or inflation (printing money to pay).

If this is true (please let me know if my logic is off, everyone) then the issue is not with trade, which would be self-adjusting, but with the government's propensity to mess around with things.

K Ackermann May 30, 2009 at 1:04 pm

There is another way to view Geithner's message. He may be simply warning China that there necessarily will be a trade reversal coming up.

We've obviously seen a flattening of the trade deficit, but it has not exactly been from a mighty rise in exports. The deficit actually widened in March, and that reversed a trend. Imports declined by 1%, while exports declined by 2.5%

Looking at the possibilities from our side, we have:

Imports rise – a strong dollar or credit expansion will make this happen. It is the path the Chinese want, and the path the US has been trying to engineer. It hasn't worked yet, and tomorrow doesn't look so hot either.

Imports fall – observed reality. Caused by lower demand and credit destruction.

Exports rise – this will happen from a combination of rising foreign demand and a falling dollar. You can forget credit expansion, so this will ultimately be our way forward.

Exports fall – a combination of weak foreign demand and dollar strength is why this is the reality of today.

So, all I've done is talk about inflation. It is my personal view that we are going to see continued and increasing deflation for quite some time – multiple years. There will be head fakes, such as the one right now with oil that is being engineered by GS, but that will correct and the downward trend will continue.

If this proves to be the case, then China better well look inward, because we will be closed for business while we grieve over the loss of our economy.

If it proves not to be the case, it will be because the rest of the world has decided to partake in commerce, and our banks will finally have a place to dump their huge piles of garbage known as dollars.

Before that happens, China is going to have to make a decision: do they float their currency and enjoy cheap goods and materials from the US, or do they keep it pegged to the dollar and compete with us to flood the world in cheap goods?

For a hint of what they will do, watch their treasury holdings. There has been a lot of mystery money showing up in the US stock markets. I'm not saying it's China, because our markets no longer have transparency, so I can't say anything for sure.

Maybe oil prices are correct if, say, we find out China has made a large purchase from the Saudi's.

I still think deflation is the most likely path. We have a lot of destruction to do. Let's hope the bond markets stay intact during this process. They certainly won't in the inflationary scenario.

This is the last speculation/conspiracy I will engage in today.

K Ackermann May 30, 2009 at 1:26 pm

I found a great porn site:

The Albatross May 30, 2009 at 2:12 pm

China is Communist? They do have private property rights–is that communist? They are buying our bonds and they are suckers. True, China has one party rule–kind of like us right now. The Chinese government screws their people on my behalf. All I have to say is thank you–please keep up the good work.

Chris A. May 30, 2009 at 4:37 pm

Wow, do we really want the only country that is beginning to frighten us militarily to *stop* trading with us? People don't generally shoot their customers, but if we aren't anymore…

Lee Kelly May 30, 2009 at 4:37 pm

Does not the Chinese government control, or at least manipulate, the price of Yuan in U.S. Dollars? Does they not suppress that price below what would otherwise prevail? The Chinese are serving U.S. customers too much, because the Chinese Government ensures thatU.S. Dollars are made artificially valuable to Chinese producers.

My brother-in-law works for a company in England which imports cheap goods from China, but he cannot pay the Chinese producers in Sterling. Because of the policies of the Chinese Government, the Chinese want U.S. Dollars, and so my brother-in-law must first buy U.S. Dollars to purchase his imports.

By increasing the demand for U.S. Dollars, the Chinese Government has created a bubble. However, since the Chinese Government is a monster with a printing press, this is a bubble which could grow for a very long time.

save_the_rustbelt May 30, 2009 at 5:42 pm

Apparently we have a few bugs to work out with our import economy.


In short, drywall that was imported from China which corrodes copper and metal surfaces, often gives off a foul odor, and can make you sick. Such compounds as butanethial, carbonyl sulfide, hydrogen sulfide, mercaptan, methylthio pyridone, sulfuric acid, sulfurous acid, sulfur dioxide and stronium sulfide have been found in Chinese drywall. The Environmental Protection Agency (EPA) has declared many of these compounds to be toxic (See EPA Drywall Sampling Analysis dated May 7, 2009), however, the Florida Department of Health (DOH) continues to maintain that the levels found in Chinese drywall are not high enough to present “an imminent or chronic health hazard at this time.” It is not clear whether this finding takes into consideration long-term exposure and the combined exposure to multiple compounds.

Nice rotten egg smell. Cozy.

Gary Rogers May 30, 2009 at 7:51 pm

Congratulations on the letter. It makes one of those important but subtle points that most readers miss.

As far as Tim Geithner pressing the Chinese to do anything, I don't think anybody has anything to worry about. When you owe somebody several trillion dollars, you do not go in and tell them how to run their business. That would be like General Motors going to congress and telling Barney Frank to sit down and listen to what the government has to do to save GM. This is all political posturing and face saving, while the meetings are about what we need to do to continue to receive the financing our government so desperately needs. I am just worried that the Chinese might fire Mr. Geithner.

K Ackermann May 30, 2009 at 8:44 pm

Did it say what percentage of the drywall the chemicals composed? I'm just wondering, because they are far more valuable than gypsum.

It's kind of like adding lobster to stretch clam chowder.

K Ackermann May 30, 2009 at 8:59 pm

@Lee Kelly – China has been very aggressive creating currency swaps in their region, and in Argentina. They probably will start in on Europe soon.

Stores in Hong Kong now accept yuan.

It's a little creepy because if the dollar collapses and the yuan is widespread, China could decouple the yuan and there would be a massive flight to it.

If that happened, and someone asked me what the reserve currency was, I wouldn't know how to answer.

I think a pact should be made that says the day people stop accepting dollars is the day all the states secede from the government.

Washington DC is not state, so it can just call itself the United District of Columbia. We can wall it off and declare it a sponsor of terrorism.

The Albatross May 30, 2009 at 9:09 pm

More money for me if they keep the Chinese wallboard out–I do not approve but I do hate competing.

vidyohs May 30, 2009 at 10:02 pm

Oh this is rich. Timothy Geithner is going to China to teach them to buy their own stuff for awhile? How rich is that? ROFL!

Don, Russ, Methinks, Brotio, Sam, Randy, dgl, you guys will likely enjoy this one:

Oh how de pendulem do swing!

SaulOhio May 31, 2009 at 6:21 am

"The idea that communism is OK as long as we can profit from it coming from libertarian thinking people blows my mind."–muirgoe

WHO SAID THAT? Who said anything that can be somehow twisted into such a meaning? This is typical of leftist/statist/socialist/marxist/whateverbut notcapitalismist arguments. You can only have some hope of winning an argument if you accuse your pro-capitalist opponents of saying things they never said.

Daniel Kuehn May 31, 2009 at 7:16 am

Cheers -
RE: "I agree that debt-funded trade deficits are pretty stupid things to have, but that's not because trade is the problem. That's because debt is the problem."

EXACTLY. And yet every time somebody raises this point they get accused of being anti-trade!

Daniel Kuehn May 31, 2009 at 7:21 am

vidyohs -
RE: "Don, Russ, Methinks, Brotio, Sam, Randy, dgl, you guys will likely enjoy this one:"

Ah yes, the former journal of the Russian Communist party telling us that we're becoming Marxist, in the same issue that they feature articles like "Men become impotent because of women's bare legs", "Nudism endangers human potency and health", and "Hellish hairy sea monster cast ashore".

Give me a little bit, vidyohs… I need to scour the National Inquirer for my rebuttal (and actually, they broke the John Edwards mistress story, so they might not be half bad).

Dijo May 31, 2009 at 10:07 am

Thanks to Boscoh and kevin for their inputs.

vidyohs May 31, 2009 at 10:15 am

Ahhh DK, none are so blind as those who will not see.

None are so senseless as those who reject the message because of the messenger.

None are more willing to tell the truth about you to you than your adversary, your friends and employees certainly won't

None are so stupid as those who repeat the same mistake over and over, each time thinking it will turn out different.

If you do read the National Inquirer and have difficulty with the big words, just ask and I won't help you.

K Ackermann May 31, 2009 at 11:46 am

vidyohs, the more I read of you, the more I respect you. It's not because I think you are right, in fact, I couldn't disagree with you more even if you were twice as wrong.

It's that you have that arrogance that springs from certainty. I initially dismissed it as foolishness, but you are anything but a fool.

We will being going rounds, I suspect, for a long time. It will be interesting because you argue from a strong ideological point of view, and dogma is anathema to me. You are just as convinced that your logic is sound as I am convinced mine is sound, but the axiomatic calculus each of us uses is different.

I have to warn you though: if you ever link to some fake Pravda article, no matter how correct it is, expect a vile retort. I can post links that will send you into the darkest corners of DailyKos where 'diaries', equally correct, are delivered from a point of view so foreign to your thinking that you will need a brown paper bag to hyperventilate into as you resist the urge to run to your mother's bosom and ask her to make the bad man stop.

muirgeo May 31, 2009 at 2:37 pm


I have a hard time respecting some one who claims to be a minarchist and collects a government pension. Not to mention some basically genocidal ideas he's posted here on more then one occasion. A guy like vidyohs has much in common with Timothy McVeigh as best I can tell.

vidhoys…. honest now did you read The Turner Diaries?

That's why he's earned the nick name "MinarchMan (with a government pension)".

K Ackermann May 31, 2009 at 5:01 pm

muirgeo, now I have to look up minarchist.

I haven't been here long enough for any meaningful history, but yeah, vidyohs's posts have stood out as rather loud.

I was having a little fun in my post above.

vidyohs, do you really collect a public pension? Does that mean your health coverage is taken care of?

If so, good for you. Too bad it isn't true for everybody.

And vidyohs, I don't condone this at all, but if you are determined, then don't take some neighbor hostage or climb a tower. You have a raft of better targets right in your home state. I never believed Russell Eugene Weston Jr.'s stated motive "to prevent the United States from being annihilated by disease and legions of cannibals…"

You can't convince me it wasn't Tom Delay he was after. If he said that instead, they would have given him a medal.

dg lesvic May 31, 2009 at 5:34 pm

You have Vidyhohs all wrong.

He's a lamb.

K Ackermann May 31, 2009 at 6:02 pm

OK, I looked up minarchist, and I don't know what to say. If there was just a modern example…

Mass information could be quite a problem because publishing objective statements of truth could take on the appearence of statism and would have to be violently surpressed. Only wildly inaccurate stream-of-conscious utterings could safely be… uttered.

In tonight's news, the Vested Protection Authority once again reports there have been no outside invasions. It did, however, beat the 4th grade class at H.S. 513 about the head with nightsticks when an appearent football game was mistaken for a newly organizing authority. The action was praised by some for the vigilance, and they were quickly clubbed over the head too. Most expressed strong indifference to the action, and we here at Ch.8 are indifferent to their indifference. We have absolutely no opinion on the matter, and couldn't care less. We arrived at that conclusion only by random chance.

Coming up next, residents in the path of category 5 hurricane Billy-Bob are still not budging, declaring the hurricane has no authority to make them move. Donations totalling $170 coins from the last hurricane still have not been distributed due to widespread head-clubbing when volunteers take on the appearence of being organized.

vidyohs May 31, 2009 at 7:47 pm

Test……..allo! Anyone out there?

vidyohs May 31, 2009 at 8:14 pm

K. Ackerman,

Through a long and fruitful life I have learned that those who are weak, indecisive, unconfident, timid, confused, soft, uncertain, politically correct, and suffer lack of conviction cover their own frailty by labeling people who are opposite as dogmatic.

vidyohs May 31, 2009 at 8:18 pm

Experience, my friend, is different from man to man, and mine taught me that the best way to get through tough times, dangerous times, boring times, and exciting times and remain healthy and productive was to stick to my standards and common sense as closely as possible.

vidyohs May 31, 2009 at 8:19 pm

You call it dogma and I call it wisdom gained from experience. Of course the only reason you call it dogma is that it opposes your thoughts, and I know that. This isn't my first or only trip to the rodeo.

vidyohs May 31, 2009 at 8:24 pm

This is a difficult way to get a comment out, but this blog is not letting me just give a reply.

vidyohs May 31, 2009 at 9:11 pm

Try again,
K. Ackerman
Through a long and fruitful life I have learned that those who are weak, indecisive, unconfident, timid, confused, soft, uncertain, politically correct, and suffer lack of conviction cover their own frailty and inadequancy by labeling people who are the opposite as dogmatic.

LOL, what you see in me is called standards and practical reasoning: and that was taught to me by some very pragmatic, practical, and common sense people whose wisdom I could see reflected in the performance of life, human, animal, and plant. An education, I add, then supplemented by more of the same by a military filled with WWII vets who trained my generation and who took no sh.t and accepted only the best from us.

Experience, my friend, is different from man to man, and mine taught me that the best way to get through tough times, dangerous time, boring times, and exciting times and remain healthy and productive was to stick to my standards and common sense as closely as possible.

You call it dogma and I call it wisdom gained from experience. Of course the only reason you call it dogma is that I generally oppose your thoughts and views, and I know that. This isn't my first and only trip to the rodeo.

At some point in your life you have to simply pull the weeds in your garden and not agonize over the decision. A wise person does not coddle the weed, permit it space to grow, and expect it to be benign or beneficial to the production of the garden. I learned to recognize weeds long long ago, I suggest you begin to do so, beginning now. Socialists are weeds in the great garden of humanity, they produce nothing of value and in general degrade the plot they are in.

It is to your shame that muirduck now admires you: God, what a denigrating endorsement. you have no idea yet of just how that belittles you.

BTW, I am waiting for your input on those aspects of socialism that you see as worthwhile to explore or think might be beneficial to humanity.

Lay them out and let's examine them to see if they ultimately produce strength, good character, self sufficiency, self reliance, charity, ambition, innovation, incentive; or, perhaps will we find that they ultimately produce thumbsucking depemndency, as well as general degeneration of human character?

dg lesvic May 31, 2009 at 10:15 pm

I told you he was a lamb.

finance articles May 31, 2009 at 10:49 pm

referring to above. Realistically, I know the beast in us will take over and this will end like it did in France in the 1790's. I will, however, not be the one holding the sword.

I came across this interesting site..check it out Econ & Finance Articles Updated Daily

K Ackermann June 1, 2009 at 2:34 am

BTW, I am waiting for your input on those aspects of socialism that you see as worthwhile to explore or think might be beneficial to humanity.

vidyohs, all of this will happen, but not in this post. I'm dog tired right now. I've been staring at my screen coding for almost 18 hours now, with an occasional blog comment here and there. My ass is literally sore, and I can see you smiling now, so save the sore-ass jokes.

I'll even continue to look the other way on the socialist comments since it seems to make everyone happy. I must be the only socialist who is right now striving with all my might and praying to sweet Jesus to give me the strength to crush a particular company which does not yet know I exist.

I want their descent to be rapid, and final, and I want their doors to be welded shut. I want to welcome their hopefully former employees to their hopefully new jobs here. I want the CEO's personal secretary stuffed and mounted on my office wall, but if it makes you happy to call me a socialist, then fine.

Methinks June 1, 2009 at 7:13 pm

Oh, I'm sure that the Chinese will run right out and do as they are told by Dim Geithner. He will rue the day that happens.

When Chinese demand catches up to Chinese production the Chinese will suddenly become a lot less interested in financing U.S. consumers. Then, we will have a few more things in common with Zimbabwe.

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