Here’s a letter that I sent to the Wall Street Journal:
Peter Navarro asserts that “China mops up vast sums of export dollars through sterilization efforts that are tantamount to forced saving. In the process, Chinese consumers lose significant purchasing power because of the undervalued yuan – and Americans lose millions of jobs” (Letters, Nov. 21).
Ignore the question of whether or not Beijing’s commitment to peg the yuan to the dollar really is currency manipulation. Instead, suppose the Chinese people truly did – voluntarily – have a very high savings rate. Would Prof. Navarro argue that trade with the Chinese under those circumstances would cause Americans to “lose millions of jobs”?
If not, why does Prof. Navarro believe that “forced saving” by the Chinese depresses American employment? From Americans’ perspective, the particular reasons why the Chinese people save as much as they do are economically irrelevant.
But if Prof. Navarro does believe that even voluntarily high savings by the Chinese makes U.S. trade with that country a source of higher unemployment in America, then Prof. Navarro must believe that America’s best trading partners are those foreigners who are most profligate – in which case Prof. Navarro should also believe that he is better off trading with individuals who are profligate than with individuals who save and accumulate capital. I wonder if Prof. Navarro trades only with mall-rat teenagers and other irresponsible spendthrifts. Given his economic ideas, he should seriously consider this course of action.
Sincerely,
Donald J. Boudreaux
Podcast RSS Feed
Full EconTalk Text
{ 27 comments }
Or should he be cursing American workers for pricing themselves out of the job market?
If you say this in any American union hall be prepared to run for your life or have a fast horse tied up outside.
It is very simple isn’t it? A stronger Yuan gives all people in China a raise. They have more purchasing power to buy foreign goods with a margin of disposable income not available now.
Will the government give consumers a significant raise by allowing a market for the Yuan? Will a market of non-government controlled goods and services be made available to consumers in which to spend their raises begin to develop?
Navarro really ought to consider a different profession, since he has no idea what he’s talking about. Americans don’t “lose jobs” to China. Rates of employment & unemployment are largely independent of international trade.
What’s *not* independent is our twin deficits — so long as we insist on using foreign financing our federal spending, these imbalances are inescapable.
Navarro really ought to consider a different profession,
Americans don’t “lose jobs” to China. Rates of employment & unemployment are largely independent of international trade.
–
If that drives Navarro to some sort of military job, so be it.
The matter is that we lose work to those Third World nations. They smooth over trade by removing freedom and encouraging corruption.
Type your comment here.http://disqus.com/vidyohs/
This is sophistry at its worst. The facts are clear: To undervalue its currency, China must buy billions in U.S. bonds. To do that, the government must force its citizens to “save” using sterilization techniques. It’s obvious that the intent is to bolster the Chinese economy. It does so at America’s expense. Condoning this kind of crap with faulty logic is just plain silly.
This is so obvious but this blogger does not seem to understand it. I wonder why? is it lack of understanding basic arithmetic? Is it inability to think in a proper state of mind? Is it an effort to blindly support a certain agenda? Don’t matter, whatever it is, it is obvious even to a 10-year old that free trade must be free on every level including a free exchange rate determined by the markets otherwise it is simply called “wealth transfer”, and this is what has been happening in recent years. Immense wealth transfer from America to China with the blessings of American politicians and multinational corporations. Which was also the determining factor in the financial crisis due to the credit imbalances and the current high unemploynment rate.
A smart ten year old woud be able to see that when one country sends its stuff and its savings to one country, the recieving country uses the stuff for consumption and the savings to expand. Think of it this way: a bank (China in this example) keeps wanting to loan and this drives down the interest rate; the lenders (people in the U.S.) borrow these funds more and more…if the lenders are able to use their leverage of borrowed funds and produce something with them that returns more than the amount of principle and interest, then who comes out ahead?
Any smart ten year olds in your household?
LowJoe, as a ten year old, you may not know this but China buys U.S. treasuries as a way to keep its currency valued low. Someday, when you are older, we hope you can bring U.S. dollars into China and buy Yuan. You will learn more of the benefits of markets as you age and hopefully someday there will be a market influenced Yuan price.
>>Someday, when you are older, we hope you can bring U.S. dollars into China and buy Yuan.<>You will learn more of the benefits of markets as you age and hopefully someday there will be a market influenced Yuan price.<<
No, I think I'll always remain idealistic and insist that our own government retaliate against any perceived unfairness by meddling in the market as well…you know, to level the playing field. You might not be all the bright so I'll tell you now that this was my way of projecting and creating a caricature of something that MAY be one of your hairbrained ideas.
China chooses to buy U.S. bonds, but there’s nothing inevitable about this. The Chinese government wants the Chinese economy to grow, but that growth is not at America’s expense. After all, trade is a two-way street. Both parties to a trade benefit at least ex ante, or they wouldn’t trade.
And if you think their buying U.S. bonds is a problem, maybe the U.S. (government) shouldn’t be issuing so many of them. IOW Uncle Sam should get his own house in order and stop trying to burn down everyone else’s.
Our economic problems are mainly caused in Washington D.C., not in Beijing.
I read your book If It’s Raining in Brazil, Buy Starbucks, and saw no evidence of mercantilism there. You have a nice graph on p. 219 of the growning U.S. federal government deficit, but ducked the question of whether this would be a long-term problem. Well, duck no more, it’s a problem.
When tax revenues decreases due to high unemployment and reduced economic activity, then the Treasury is forced to issue more bonds to meet obligations, often at higher yields. The Chinese, by subsidizing their exports with an artificially weak currency they drive US economic activity down in an otherwise free-market environment.
This one-sided view of free-markets has been vividly supported by neocons as a means of achieving a solid alliance with China against other fronts at the expense of American jobs and prosperity.
I do not see many of those who are screaming free trade to also scream for free exchange rates. This may be an indications they have a hidden agenda.
To me there is nothing worse from a hidden agenda supported with all sorts of sophistry and twisting of reality. It is the lowest level of intellectual discourse one could get to.
>>When tax revenues decreases due to high unemployment and reduced economic activity, then the Treasury is forced to issue more bonds to meet obligations, often at higher yields…I do not see many of those who are screaming free trade to also scream for free exchange rates. This may be an indications they have a hidden agenda.<<
The Treasury is not forced to do anything of the sort, Mike. The federal government COULD cut spending. Where's YOUR screaming for spending cuts, Mike? Is this an indication of where your agenda lies?
Would love some discourse on this!
Or should that be “China is doing it at the U.S.’s expense but there’s nothing wrong with it”. Isn’t it really akin to a mowing guy who charges $50 per job is going broke because a new guy has moved in charging $20 per job? Creative destruction? The U.S. can’t foist its standard of living onto the world anymore as China will deliver the same, if not more, for considerably less and as such the U.S. is losing much business. Just as the $50 per job guy has to charge $20 or less per job and adjust his lifestyle accordingly to get customers back so too must the U.S. drop employment standards so U.S. factories are as cheap as Chinese factories if they want to see employment to return.
That, or he makes it impossible for the $20 guy to continue. No thank you, but you’re not going to see despotic slave labor as you so ask.
Prof Navarro,
Congratulations for rushing in where so many others fear to tread, and crossing swords with Monsieur Boudreaux, the greatest swordsman in all of France.
But I hate to tell you this. Your head is rolling around on the floor.
, which is more than most of his subjects will do. So, while I don’t agree with you, I respect you.
So, when China buys billions in U.S. bonds, explain how that is hurting the U.S.? Do not answer this question by suggesting that the amount in U.S. bonds that are being issued is a problem — of course it is; that’s a federal government spending issue and it will not answer the question.
Also explain how China’s (deliberate) undervalued currency helps their consumers — both business and end item users who could probably get much lower cost consumption if their imported items were as cheap as you think they should be.
Don,
I really love the plain spoken , no BS approach to your solutions. I guess it is going to take a real long depression to force Americans to awake to the reality that we are competing for jobs in a global market. Our “free” press has been of no help in explaining to the public what that means. We do not lose jobs over the cost of labor. That is one of the big lies that the unions and the media have used for years. We lose jobs overseas because we make it impossible for companies to compete due to our: highest in the world business taxes, most numerous and onerous regulations (EPA, OSHA, IRS, et. al.). Our citizens need to realize that if we want jobs that give us a good lifestyle, we need to create an environment where businesses can grow and create those jobs.
That Southern-inspired cheap shot doesn’t hold water when you look at their governments. They remove freedom for the sake of business efficiency. Our First World nation has those regulations so that business cannot revert to imbalanced 19th century labor practices.
Your objection is the Big Lie that you’ve memorized and recited too well.
Where have we seen this deferment of freedom for business before the Third World picked the practice up?
I don’t understand how pegging the yuan to the dollar amounts to forced savings. Isn’t the Chinese government forcing inflation on the Chinese?
I guess the Chinese government is accumulating dollars so this is the savings. But, voluntary savings by the Chinese wouldn’t cause inflation.
I am confused, this seems like a different effect then savings what am I missing?
I am fascinated how capitalism seems to be making strides in Asia while losing ground in the west. The Chinese should agree to float the yuan with the proviso that the American government’s entire gold holdings be sold to them. Not sure this is actually a good idea for China, but I would love to learn what the administrations response to this would be.
Good post. And China does allow their currency to float. They’ve been doing this for nearly four years now.
Donald J. Boudreaux wrote
“Ignore the question of whether or not Beijing’s commitment to peg the yuan to the dollar really is currency manipulation. ”
This IS the question. So why ignore it? The answer is fairly simple. It IS manipulation. The impact is tremendous. Why ignore a fact with a tremendous impact relevant to the issue at hand? Why kind of thinking this is?
If the Fed and the Treasury are not manipulating the dollar (through the blunt instrument of manipulating interest rates, praytell what exactly are they doing?
Low, as you get older you may develop sound ideas and valid arguments. For now, please practice on the playground and don’t be discouraged because the word “caricture” might just impress your teacher.
>>Low, as you get older you may develop sound ideas and valid arguments.<>For now, please practice on the playground…<<
Ha! Even away from the playground, you're still getting taken to school but aren't aware enough to realize it.
Poor Joe,ever the bully and never a wisp of success.
Oh, you feel bullied. For someone who is so prickly, I’d have thought you’d have some thicker skin. To know that I’ve gotten under yours as much as you did mine [because of your snarky-ass comments above], means that I was successful in bullying the bully.