F.A. Hayek once wrote, “History is largely a history of inflation, and usually of inflations engineered by governments and for the gain of governments.”
While it would be nice if the CPC would stop trying to pull the run-around on the rest of the world by manipulating their currency, toying with the yuan to keep Chinese exports to the U.S. cheap and making American exports more expensive, let’s step back and recognize that the United States is far from innocent of similar shenanigans. The free market should determine the values of freely competing currencies, but government intervention is practically inevitable.
So, though I’m generally not in favor of allowing the CPC to strong-arm us in any shape, manner, or form, I have to agree with Speaker Boehner when he said that imposing sanctions on China would be “pretty dangerous.” Nothing deters war and aggression like economic interdependence, and the Chinese have threatened a trade war if the U.S. moves to impose sanctions on China. I did, however, appreciate the dissenting voice of the usually robust free marketeer Senator Jeff Sessions, which Tina Korbe pointed out on HotAir. Senator Sessions recognized that one of the necessary preconditions of free enterprise is a stable and reliable currency, and that its diffucult to have faith in your transactions with a party that openly games the trading system. In this case, though, we stand to lose a lot more than we stand to gain by punishing China.
Many Democrats, in their increasingly manic endeavors to boost employment through any method possible except scaling back the federal government, have taken the protectionist tack and claimed that slapping duties on Chinese imports will bring jobs back to America. The Democrat-controlled Senate passed just such legislation on Tuesday evening, and China promptly demonstrated that they are willing to follow through on their trade-war threats by depreciating the yuan even further this morning, reports the WSJ:
BEIJING—In a defiant response to U.S. Senate approval of a bill that would pressure China to let its currency rise faster, the nation's central bank guided the yuan substantially lower on Wednesday and warned that further currency reform could be imperiled if the bill becomes a law.
Interestingly, the Senate moved forward on this one despite trepidation from President Obama, even though the White House hasn't offered an official position on whether the President would sign the bill if it came to his desk:
President Barack Obama said China is manipulating its currency but expressed concerns that a pending Senate bill to penalize the Chinese may not be the most effective U.S. response.
Mr. Obama said China is at the very least intervening heavily to keep the yuan’s value low.
“China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries,” Mr. Obama said at a wide-ranging, midday press conference. “Currency manipulation is one example of it, or at least intervening in the currency markets in ways that have led their currency to be valued lower than the market would normally dictate,” he said.
But Mr. Obama said he would leave it to the Treasury Department to determine official designations for China’s actions, possibly referring to how China is treated in a periodic currency report released by the agency. Treasury has so far declined to label China a “currency manipulator,” which would have legal trade implications.
Boehner and Cantor haven't committed to even bringing the bill to the House floor, even though the House version of the bill has 226 co-sponsors and a discharge petition could potentially force a vote.
As I’ve written before, the Communist Party of China is perfidiously underhanded, and I don’t like ‘em. The CPC, emphasis on the Party and not so much on the Communist, is about what all such regimes are about – keeping the few in power lording it over the serf-like masses, whatever the grandiose claims of equality behind which they attempt to hide. Despite the undeniable fact that China is headed for an inevitable fall (hint: communism), I think that someday China can be free and prosperous, and the world will be better off. Poor short-term protectionist choices, however, will not help in accomplishing that goal, and we need to do a better job of picking our battles.