Who really wants the yuan to rise? Who does not and why? Two parties are not interested in the yuan being seriously revalued. The first is China; the second is the Treasury Department, which now speaks primarily for Western firms in China. The reason? The answer is here:
According to Vice-Premier Wu told a dinner in Washington in May attended by Paulson and Bernanke that the yuan’s value was not the cause of the deficit.
She added that about 85 per cent of China’s surplus with the US is from foreign companies exporting products no longer made in the United States, such as shoes.
“Eighty-five percent,” economists. Western firms in China, not indigenous Chinese firms, account for eight-five percent of China’s trade surplus with the U.S.
Meanwhile–as reported in the above article and elsewhere–the Senate Finance Committee on Thursday voted 20-1 on a bill that would give the U.S. the tools to address the currency misalignment as well as countering dumping. But the Treasury Department really does not want anything to do with this proposed legislation, insisting that “discussions” are the way to go. Chuckle.
Quite honestly, this administration likes the peg, and will be led kicking and screaming to do anything serious about it. Foreign companies, especially American ones, are doing quite well in China–and profiting handsomely from the peg. Apple’s profits are skyrocketing. In fact, American companies, mnc’s cozily ensconced in developing nations, have led the stock market boom of recent years. The only thing that will hurt them is the credit crunch in the U.S. –the consumer exhaustion–and the persistent high cost of energy, which is sure to go higher as we get ever closer to peak oil.
I have written frequently on the trade deficit and on how globalization is being mishandled, favoring large corporations and investment firms that can chase cheap labor and low taxation everywhere on the planet. I know the Treasury Department is in the pocket of these firms. I suspect that even those dreamy-eyed liberal economists who thought that globalization as structured might now be having second thoughts. But dreams die hard.