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Friday, April 21, 2006


How Chinese goods remain cheap

A lightbulb moment understanding US China trade imbalances based on Chinese currency exchange rates being kept from floating on world money market exchange rates.  Idea


Currency exchange calculator

  1.00 CNY China Yuan Renminbi      =      0.124774 USD United States Dollars  

"How Great Powers Become Great

By Pat Buchanan


"The economic growth of 10 percent recorded by China in 2005 would seem to contradict a tenet of faith of all good democratic capitalists.
China's performance tells us that, contrary to the teachings of free-trade liberals, dictatorship and protectionism do not necessarily ensure stagnation. For China is a one-party state and the most protectionist great nation on earth. Yet, her growth has been unequaled by any free-market rival nation for 15 years.

How does China achieve her success? By keeping her currency cheap -- refusing to let it float against the dollar -- China is able to offer Chinese goods at fire-sale prices to U.S. consumers, while the cheapness of her currency keeps U.S. goods priced out of China's market.

Despite blustery U.S. protests, the arrangement continues, because both nations see their interests served.

America's consumers want quality goods at the cheapest price. American businesses want to maximize profit by producing at the lowest cost. China accommodates both, by providing efficient and reliable workers at a tenth of the wages an American needs to support his family.

The plaque inside our Statue of Liberty reads, "Send us your tired, your poor, your huddled masses, yearning to breathe free." Beijing says: "Send us your jobs, factories and technology, and we will produce your goods at a far lower price than your own people."

What the U.S. transnational corporation seeks is to retain its privileged access to American consumers, while getting rid of its American workers. China is delighted to accommodate.

Thus, it was our capitalists who were the first and most enthusiastic hosts of Chinese President Hu Jintao on his visit to America. But what does Beijing want?

In China the consumer does not come first. Nor do the voters decide policy, for there are no voters. The regime, state and nation come first. China's leaders want to make her first in manufacturing and high-technology, to become the primary producers for the world, and to displace the United States as the dominant power in Asia and the world.

The story of China and America is the story of the ants and the grasshopper. We spend every dime we earn. The Chinese are forced by the regime to sacrifice the present for a future their leaders envision.

In 2005, China ran up a $203 million trade surplus with us, selling us seven times as much as she bought from us. That trade surplus with America is responsible for 100 percent of her economic growth. China literally produces for the American market. As a result, her dollar reserves are the largest on earth, approaching $1 trillion.

What does Beijing use the money for?

First, she uses the dollars to create ties of dependency in Free Asia by buying more from these nations than she sells to them. Australia, whose natural resources are pouring into China, is becoming dependent for her prosperity on China.

Second, she invests her dollars strategically in energy projects outside of China and in nations America has declared off-limits: Sudan, Iran, Burma.

Third, she buys weapons and weapons technology from Russia, Israel and Europe to modernize her armed forces. And while her GDP growth was 10 percent last year, her defense budget has been steadily rising by more than 10 percent a year.

"Since no nation threatens China, one wonders: Why this growing investment (in her military)?" asks Donald Rumsfeld.

Good question. The configuration of China's forces gives us the answer. China has implanted 600 missiles opposite Taiwan, which can have only two plausible purposes: to intimidate Taiwan, or to attack Taiwan.

China is also investing in warships, submarines, modern fighter-bombers and space technology. As there is only one great air and sea power out there, there is no doubt at whom this buildup is directed.

Diplomatically, Beijing is drawing to her side all the nations that are on the outs with George Bush's America -- from Russia to Burma to Iran to Sudan to Venezuela to the new nations of Central Asia.

China today calls to mind the Kaiser's Germany. As the Kaiser's Germany built a High Seas Fleet to rival the Royal Navy, so China builds up a military to rival ours in Asia. As the Kaiser saw British-backed plots to isolate and surround her, so China sees the United States organizing Japan, Taiwan, Australia, Vietnam, India, Pakistan, Afghanistan and the old Russian provinces of Central Asia against her. Encirclement -- in her eyes.

There is no greater work for today's statesmen than ensuring that what happened to Germany and Britain in the first half of the 20th century is not replicated by America and China in the first half of the 21st. "

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