Clouds over Chimerica

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QUOTE: America's large trade deficit with China. Pressure continues to be applied to China to revalue its currency in order to reduce its trade advantage over goods made in the US.

Every time a US company offshores goods and services, it adds to the US trade deficit.

Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70 per cent of the goods on Wal-Mart shelves.

The NYT editorial expresses the concern that China's "threat" will cause protectionist US lawmakers to stick on tariffs and start a trade war. "Free trade, free market" economists rush to tell us how bad this would be for US consumers: A tariff would raise the price of consumer goods.

The free market economists don't tell us that dollar depreciation would have the same effect. Goods made in China would go up 30 per cent in price if a 30 per cent tariff was placed on them, and the goods would go up 30 percent in price if the value of the Chinese currency rises 30 per cent against the dollar.

The fuss about tariffs makes even less sense once one realizes that the purpose of tariffs is to protect domestically produced goods from cheaper imports. However, US tariffs today would be imposed on the offshored production of US firms. In the era of offshoring, corporations are not a constituency for tariffs. - Paul Craig Roberts, economist, former Asst. Secy of the Treasury.

http://www.counterpunch.org/roberts08172007.html

The value of Chinese currency isn't the problem. It's a smokescreen for the real problem....outsourcing.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 4:01 pm

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