Tag: China

China Currency Hearings a Distraction

This week’s congressional hearings on China’s currency generated a lot of heat but almost no light. Winning the prize among tough competition for the most irresponsible sound bite was Sen. Charles Schumer, D-N.Y. At a Senate hearing Thursday that featured Treasury Secretary Tim Geithner, Schumer tossed out this grenade:

At a time when the U.S. economy is trying to pick itself up off the ground, China’s currency manipulation is like a boot to the throat of our recovery. This administration refuses to try and take that boot off our neck.

The implication of the senator’s remark is that Americans would be enjoying a robust economic recovery right now if only China were to allow its currency to appreciate by 20 to 40 percent. But is that a reasonable charge?

Granted, China’s currency, the yuan, probably is priced in dollars below what it would be were its value freely determined in global currency markets. And an undervalued currency will make Chinese imports to the United States more affordable, and U.S. exports to China somewhat more expensive. But “a boot to the throat of our recovery”? Let’s get real.

The Chinese market has been one of the bright spots for American exporters. China’s economic growth has been so robust that its growing demand for U.S. goods has swamped any negative effect of its currency. In the first seven months of 2010, according to the most recent monthly report from the U.S. Commerce Department, exports of U.S. goods to China are up 36 percent compared to the same period last year. That is a 50 percent faster growth rate than U.S. exports to the rest of the world.

Meanwhile, U.S. imports from China so far this year have been growing more slowly than exports to China, and more slowly than imports from the rest of the world. As a result, while our trade deficit with China in 2010 has grown by $22 billion, our trade deficit with the rest of the world has grown by $64 billion. But it is much easier these days to demonize China than other trading partners with whom Americans run a trade deficit, such as Canada, Japan, and the European Union.

One of the bright spots of the U.S. economy has been the manufacturing sector, which is supposedly taking the brunt of China’s “currency manipulation.” According to the latest report from the Federal Reserve, U.S. manufacturing output is up about 8 percent from a year ago.

The chief obstacle to America’s recovery is not China’s currency regime, but a housing market that remains depressed, soaring government spending and debt, looming tax increases, and grandstanding politicians who refuse to remove those very large boots from the neck of the American economy.

Experience Is a Good Teacher, But She Sends in Terrific Bills

[above quote attibuted to American writer Minna Thomas Antrim (1861-1950)]

The AP reports on trouble facing the Chinese census:

After years of reforms that have reduced the government’s once-pervasive involvement in most people’s lives, some Chinese are proving reluctant to give up personal information and harboring suspicions about what the government plans to do with their details.

The Rumors of Manufacturing’s Death Have Been Greatly Exaggerated

“US manufacturing grows for 13th straight month” is the headline of an AP newswire story posted around noon today.  This statistic doesn’t surprise me, since I’ve been following developments in U.S. manufacturing for many years now, and have published analyses of public data that refute the myth of deindustrialization and manufacturing decline

With the exception of the recession of 08-09, when all U.S. economic sectors took a hit, U.S. manufacturing has been breaking its own record, year after year, with respect to output, value-added, profits, returns on investment, exports, and imports. U.S. factories are the world’s most prolific, accounting for 21.4% of global manufacturing value added in 2008 (China accounted for 13.4%).

But I bring the AP headline to your attention for one reason: so that you can judge for yourself who has any credibility on Capitol Hill, within the executive branch, in the media, among organized labor, in industry, in the think tank world, and within the international trade bar, as Nancy Pelosi tries to stuff a ruinous anti-China trade bill down our throats in the name of supporting our floundering manufacturing base.  Look for the columns, the op-eds, the press releases, and the floor statements between next week and November.

Who among them will continue to cite our suffering manufacturing sector as the justification for protectionism?  They should never again have any credibility.

Obama on Human Rights in America

I’ve just sent a short post to ”The Corner” at NRO on the Obama State Department’s new report to the U.N. Human Rights Council on human rights conditions in the U.S.  In a word, we’ve got problems, especially concerning women, minorities, etc., but we’re trying to live up to the expectations of other human rights exemplars on the council – Russia, China, Saudi Arabia, Cuba.

Read and weep.

Don’t Be Afraid of the Chinese Economic Tiger

The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy.

Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom — which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per-capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per-capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Scores have improved, but the Economic Freedom of the World report ranks China 82 out of 141 nations, just one spot above Russia, and the Index of Economic Freedom has an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. That would be good for the Chinese people. And since rich neighbors are better than poor neighbors, it also would be good for America.

China Now World’s 2nd Largest Economy: Ho Hum

China is now officially the world’s second largest economy, overtaking Japan in the quarter that ended in June and likely for all of 2010. While the story has been widely reported (more than 1,500 articles on Google News this morning), it is less significant than it first appears.

The news will probably ruffle the feathers of the China hawks, who will see in it a threat to America’s influence in the world, but China’s rise to no. 2 is really another sign of the world returning to normal.

China is home, after all, to one-fifth of mankind. Its population of 1,330 million is more than 10 times that of Japan (127 million) and more than four times that of the United States (310 million), according to the CIA Factbook. So even though China’s gross domestic product is now larger than Japan’s, its GDP per capita is still only one tenth that of its east Asian neighbor.

If China sticks to its path of market liberalization, it’s close to inevitable that its GDP economy will eventually surpass that of the United States in overall size. That news event is likely to grab headlines in 15 to 20 years based on current rates of growth. Even then, China’s per capita GDP will only be a quarter of what we enjoy in the United States.

China’s rank as no. 1 will be nothing new in history. According to the late British economic historian Angus Maddison, China’s economy had been the largest in the world for most of the past two millennia. In his magisterial 2001 book The World Economy: A Millennial Perspective, Maddison estimated that as recently as 1820 China’s GDP was 30 percent larger than the economies of Western Europe and the United States combined (p. 117).

After centuries of war, civil strife, and self-imposed isolation, China is only now rightfully reclaiming its rank as one of the world’s largest economies. That development is nothing to be feared.

U.S. Military Power: Preeminence for What Purpose?

Over at National Journal’s National Security Experts blog, this week’s question focuses on the recently released Hadley-Perry “alternative QDR.”

Sydney J. Freedberg Jr. of NationalJournal.com asks:

The U.S. military is already unaffordable – and yet it needs to be larger to sustain America’s global leadership, especially in the face of a rising China. That’s the bottom line from a congressionally chartered bipartisan panel, co-chaired by Stephen Hadley, George W. Bush’s national security adviser, and William Perry, Bill Clinton’s Defense secretary. The report, released July 29, is the independent panel’s assessment of and commentary on the Pentagon’s own Quadrennial Defense Review, released earlier this year.

Frequent expert blog contributor Gordon Adams, among others, has already blasted the Hadley-Perry report for making the underlying assumption that the U.S. can and should continue to invest heavily in being a “global policeman.” Is Adams right that the Hadley-Perry report calls for an unaffordable answer to the wrong question? Or are the report’s authors correct when they argue that the U.S. must be the leading guarantor of global security? And if the U.S. must lead, has the Hadley-Perry panel laid out the right path to doing so?

My response:

Dan Goure says that U.S. military preeminence is not unaffordable. That is probably correct. Even though we spend in excess of $800 billion annually on national security (including the cost of the wars in Iraq and Afghanistan, and the Departments of Homeland Security and Veterans Affairs) we could choose to spend as much, or more, for a while longer. We could choose to shift money out of other government programs; we could raise taxes; or we could continue to finance the whole thing on debt, and stick our children and grandchildren with the bill.

But what is the point? Why do Americans spend so much more on our military than does any other country, or any other combination of countries?

Goure and the Hadley-Perry commissioners who produced the alternate QDR argue that the purpose of American military power is to provide global public goods, to defend other countries so that they don’t have to defend themselves, and otherwise shape the international order to suit our ends. In other words, the same justifications offered for American military dominance since the end of the Cold War.

Most in Washington still embraces the notion that America is, and forever will be, the world’s indispensable nation. Some scholars, however, questioned the logic of hegemonic stability theory from the very beginning. A number continue to do so today. They advance arguments diametrically at odds with the primacist consensus. Trade routes need not be policed by a single dominant power; the international economy is complex and resilient. Supply disruptions are likely to be temporary, and the costs of mitigating their effects should be borne by those who stand to lose – or gain – the most. Islamic extremists are scary, but hardly comparable to the threat posed by a globe-straddling Soviet Union armed with thousands of nuclear weapons. It is frankly absurd that we spend more today to fight Osama bin Laden and his tiny band of murderous thugs than we spent to face down Joseph Stalin and Chairman Mao. Many factors have contributed to the dramatic decline in the number of wars between nation-states; it is unrealistic to expect that a new spasm of global conflict would erupt if the United States were to modestly refocus its efforts, draw down its military power, and call on other countries to play a larger role in their own defense, and in the security of their respective regions.

But while there are credible alternatives to the United States serving in its current dual role as world policeman / armed social worker, the foreign policy establishment in Washington has no interest in exploring them. The people here have grown accustomed to living at the center of the earth, and indeed, of the universe. The tangible benefits of all this military spending flow disproportionately to this tiny corner of the United States while the schlubs in fly-over country pick up the tab.

In short, we shouldn’t have expected that a group of Washington insiders would seek to overturn the judgments of another group of Washington insiders. A genuinely independent assessment of U.S. military spending, and of the strategy the military is designed to implement, must come from other quarters.