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Trade War with China October 1, 2010

Posted by hslu in China, Congress, Economics, Global Affair, jobs, Obama, Politics.
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US House of Representatives passed a bill which allows the Commerce Department levy heavy tariffs on Chinese goods if China does not appreciate its currency, Renminbi, more aggressively. Although the fate of the bill is in doubt in the Senate, the Congress is doing that to look for a scape goat for the high unemployment rate in this country.

The reason for the political posturing one month before the mid-term election is about jobs. The United States has argued that Renminbi is under value by as much as 40% which out-sourced 2 million jobs to China. While America is asking China to raise the value of Renminbi, China has to keep its value low because a high exchange rate with the United States will put millions of Chinese companies into bankruptcy, force millions of its citizens onto unemployment lines and cause social unrest in the years to come.

Bill Clinton in 1993 decided that the best way to engage China was to have free trade with the country because China was an open market for American companies to make a few bucks. If the United States stayed away from this opportunity, companies from other countries will grab the market share and leave American companies playing catch-up from behind. As a result, American companies stepped over each other and opened shops and plants in China for the past 17 years.

Now with  unemployment close to 10%, the United States are crying wolf and the Congress is asking for a trade war with China.

Haven’t they learned their lessons form the Great Depression? Didn’t they know that a trade war after the signing of the Smoot-Hawley Tariff Act of 1930 was one of the major reasons why the Depression last more than a decade?

If the Congress and Obama want a trade war with China, China will give them one just to teach the US a lesson. An all out trade war will reduce bilateral trades, further increase unemployment rate in this country and, worse, Americans will pay through their noses on almost every items they buy at Wal-Mart.

The bottom line is this: The United States is looking after its interests when dealing with China. One has to realize that China is looking after its interests too. China will raise the value of Renminbi when it is beneficial to China’s economy. The high unemployment rate in the United States has more to do with the structural change of its economy and less to do with the value of Renminbi.

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