Should China Be labelled A Currency Manipulator?

Recently there has been a lot of talk about China being potentially labelled a currency manipulator.

The claims are that China has artificially suppressed its currency over the years, making its goods cheaper, adding to millions of jobs in the country, while taking jobs away from America. The topic has been a debate over the years, but the United States has always declined to label China as a currency manipulator. Maybe not anymore.

In recent weeks, Senator Chuck Schumer (D-NY) has introduced a bill to label China as a currency manipulator, and the bill is getting increasing support, from both the left and the right. Mitt Romney, who is running for the Republican nomination for President, has repeatedly said that he would call China a currency manipulator, and just today, we have seen more comments on China from both the left and the right.

House Majority Leader, Eric Cantor (R-VA) said that he wants to know where President Obama stands on Chinese currency, and comments just crossed the newswires that Senate Majority Leader Harry Reid (D-NV) said Schumer’s bill would get “strong bipartisan support.”

In comments recently captured by 24/7 Wall Street, Schumer said, “This strong bipartisan legislation is a clear, unwavering message from both parties to China’s leaders — the jig is up, it’s time to stop gaming the system or face severe consequences. China’s history of half-truths and broken promises on currency makes passing this legislation an economic imperative. I hope both parties will come together to pass this bill next week.”

The responsibility of labelling China a currency manipulator or not has long remained in the hands of the U.S. Treasury, and Treasury Secretary Tim Geithner has refused to call out the world’s most populous country. Instead, Geithner has continually held talks with the country in private to discuss the matter, as oppose to using the media to get his point across. Should China get the label, it would almost certainly start a trade war between the two companies, with massive tariffs being hit on both sides of the Atlantic.

If you look at the price of the yuan, as measured by the WisdomTree Dreyfus Chinese Yuan Fd ETF, it has fallen 0.23% year to date. Over the past five years, the Chinese yuan, also known as the renminbi, has rose, but not fast enough, according to Congress.

The one thing politicians do understand, is how to play to the public sentiment. They see a weakened economy, mass under and unemployment, and they think to themselves, “How can I use this to get re-elected?” Instead of making the tough choices that need to get done, such as cutting spending that is not pro-growth, raising taxes where they need to be raised, and working on our infrastructure, they will go blame the boogie man: China.

We all know that the Chinese currency is undervalued. China knows this, and America knows this. Yet, we can not call out our largest trading partner, and subsequently, the largest buyer of U.S. Treasuries, and tell them to do this, or else. It does not work like that. We lost that ability when Congress, and the previous administration, as well as the current one, decided to spend massive amounts of money without any regard for our credit rating, or the long-term economic health of our country.

For our politicians, both Democrat and Republican, to come out and call out China is a bad idea. Our economy is bad enough. To put any short-term hamper on our exports could send us into a recession, which are teetering on anyway. No one wants to be in office when there is a recession going on, but it is part of the business cycle. Like death and taxes (although not if you’re Geithner), it is avoidable. There will always be recessions, and there will always be growth periods. What is different about this recession is it is a balance sheet recession. There is too much debt in this country, both public and private, and it will take years for the country to operate at anywhere close to maximum efficiency.

Calling out China is not going to do anything to help. It will only get worse.

Usually it is one side or the other that has a terrible idea. This time it is both. Someone please stop them before they inflict any more pain then is necessary.

— Jonathan Chen

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