As reported in the above-linked Reuters article, President Obama will challenge Asian nations to “do their part” in rebalancing global trade during his trip to Asia this month, and will be especially critical of China for refusing to allow market forces to determine the value of their currency.
U.S. President Barack Obama will seek to reinforce the U.S. desire for more balanced global growth during his trip to Asia this month, administration officials said on Friday…. The value of China’s currency, the yuan, is also expected to come up during Obama’s visit on November 15-19.
The yuan has consistently been a focus in U.S.-China trade disputes as U.S. critics say China intentionally keeps its currency undervalued to gain advantages. China says its stable exchange rate helps its exporters and promotes stability in the global economy.
“It is an integral part of U.S. policy that China should be moving toward a market-based value for its currency,” Bader said.
Steinberg is one of the key architects of the Obama administration’s China policy. In an indication that Obama plans to raise the issue of currencies with Chinese President Hu Jintao, he said the administration wants to see China address some of the policies “that artificially promote exports” and “their overall approach to macroeconomic policy.”
This is the same worn out approach to trade that the U.S. has taken for decades, with absolutely zero results. There are no results because currency valuations have virtually nothing to do with global trade imbalances. The influence of currency valuations is dwarfed by the role of population disparities in driving such imbalances.
Consider the evidence. Since the early ’70s, the dollar has fallen by over 300% vs. the Japanese yen. Yet, contrary to economic theory that says such a devaluation makes American exports cheaper and Japanese imports more expensive, our trade deficit with Japan actually exploded to record levels in 2006 before the global recession hit. And a couple of years ago, the Chinese yuan rose by 20% when the Chinese unpegged it from the dollar briefly. The result? Our trade deficit with China continued to worsen.
In the past year, the dollar has fallen dramatically vs. both the yen and the euro. But has anyone heard of Japanese or European automakers raising their prices to offset the decline of the dollar? On the contrary, the Japanese have actually been cutting prices to maintain their market share.
The fact is that every nation will do whatever is necessary to maintain the economic status quo. Just as the U.S. will resort to government stimulus and deficit spending to prop up the economy, overpopulated nations who are desperately dependent on exports to the U.S. to sustain their economies will do anything and everything to keep those exports going. Currency valuations be damned. They’ll just keep cutting costs to maintain market share.
Einstein said that doing the same thing over and over again while expecting different results is the very definition of insanity. That’s exactly what the U.S. has been doing in trade negotiations for decades, and now the Obama administration is carrying on the tradition. That’s not “change we can believe in.” It’s status quo – the same trade policy side show we’ve watched being played out over and over and over again – a token gesture to give the appearance of doing something while, in fact, doing absolutely nothing. The whole thing is a big joke and it makes me sick. Once again, when the Americans leave, Asian leaders will be rolling in the aisles with laughter and more Americans will be lining up for unemployment.