http://www.digitaljournal.com/article/324164

Op-Ed: US trade policy gets dumber — China vs. $USD misses everything

Posted May 3, 2012 by Paul Wallis
For a long time, the US has wanted China to upvalue its currency. The theory is that would be fairer and make US goods more competitive. The fact that it was the US that started this soap opera is religiously not mentioned.
U.S. Ambassador Kirk  right  holds a bilateral meeting with Chinese Minister Chen at the APEC 2011 M...
U.S. Ambassador Kirk, right, holds a bilateral meeting with Chinese Minister Chen at the APEC 2011 Ministerial Conference in Honolulu, Hawaii
U.S. Trade Rep. office
The story so far-
1. US outsources its manufacturing to China on the basis of lower wages, decimates US manufacturing industry.
2. Chinese economy booms and becomes “the world’s factory”.
3. Meanwhile back in the Woeful West, net cost of living prices, particularly on essentials, go up.
4. 2008 US crash creates worst economic situation since Great Depression. It’s actually worse in some ways.
5. Massive unemployment in US leads to drying up of Main Street cashflow, killing businesses and retarding job market recovery.
6. US “growth” is now based on a return from historic lows, meaning the actual growth relative to 2008 levels is debatable and still doesn’t qualify as anything but lousy.
7. The United States, in fact, is looking at another stimulus option, probably meaning printing more money, which will instantly devalue the USD relative to the Chinese currency and make all imports more expensive simultaneous with gutting local manufacturing.
8. All the time while this has been happening, the US has been complaining about the low value of the Chinese currency.
This means-
(a) The US wants Chinese manufacturing to cost US companies more in real terms- The Chinese produce goods on razor sharp margins, and won’t produce at all unless they get those margins.
(b) The US believes that unemployed people in their millions can afford to buy more expensive goods, which is what will happen win, lose or draw from an upvalued Chinese currency.
(c) The US believes that US businesses and retailers want to buy more expensive goods and reduce their own profit margins
However dumb you could ever possibly hope to be in your wildest fantasies, you’ll never be this dumb. They’ve actually managed to come up with an “everybody loses” scenario out of the best working trading arrangement on Earth.
Now a fairy tale the Brothers Grimm would never have admitted to writing-
Almost inevitably upon a time there were two economies. One was called a “producer economy”, and the other was called a “consumer economy”. The consumer economy bought goods from the producer economy because it couldn’t produce its own goods at those prices. This was because the consumer economy was too damn ignorant, lazy and greedy to figure out how to manufacture its own goods at sane prices.
Then the consumer economy had an idea. It was unusual, because the consumer economy only ever had really, really bad ideas, and this was one of its worst. The consumer economy tried to persuade the producer economy to become a consumer economy like it. So instead of having one totally insane, self-destructive economy which is now a laughing stock compared to its former self, there’d be two.
The producer economy wasn’t so sure. It had 4000 years of history during which the nation going broke had never been a good idea. It did want its people to be able to buy more things and not be dependent on exports to make money. In fact, its 5 year plan specifically explained that point, but the consumer economy obviously wasn’t listening.
So they argued and argued and the consumer economy decided that it was better to go for a double whammy, devaluing its own economy, while insisting that the price of the goods it outsourced rose, no matter what.
In ancient times, the consumer economy had been the world’s best. The chances of it going totally broke were never more than 1 in a million. At this point in history, the chances of the consumer economy becoming another failed state were about even money. Thanks to its revolutionary idea that all prices are good, it had managed to turn itself from a truly dynamic economic powerhouse into a rather unimpressive economic sewer.
Growth uber alles, or the slogan for mass suicide
If everyone is a millionaire, it’s OK until loaves of bread start costing 2 million each. That has actually happened. It happened in Germany just before Hitler came to power. The US wants China to uproot a good working system and replace it with its own system, which has been destroying it for the last 20 years. The Japanese were idiotic enough to do exactly that, and they’ve been paying for it ever since. They completely dismantled the economy which made them the second largest in the world and replaced it with a ridiculous, pseudo-American economy.
The US has totally failed to achieve viable cost of living across the board. The famous “interest rates rule the world” card espoused by 1980s monetarists has failed in the US as it did in Japan. Even zero interest rates haven’t budged the Japanese economy, and they’re not doing much for the US, either.
The US trying to advise China on correct economic policy is about as credible as the captain of the Titanic giving swimming lessons. The guy may know why you need to swim, but apparently doesn’t know a lot about keeping the ship afloat.
So far, every economic twitch by the US has been a disaster. China making mistakes will make things a lot worse. Either trade policy finally acknowledges global and US realities, or it’s management by crash test dummy in future.
Which raises a question for US voters this year- Which collection of 100% certified idiots would you like to have managing the next shot at putting Humpty back together? Blind faith is no longer enough.