Wednesday, January 25, 2012 at 10:31 AM
America and China were supposed to make each other richer. Most of us are still waiting.
Below is an excerpt from Adam Davidson's latest New York Times Magazine column, "Come On, China, Buy Our Stuff!" Read all of Davidson's Times Magazine columns here.
The first time I visited China, in 2005, an American businessman living there told me that the country was so huge and was changing so fast that everything you heard about it was true, and so was the opposite. That still seems to be the case. China is the fastest-growing consumer market in the world, and American companies have made billions there. At the same time, Chinese consumers aren't spending nearly as much as American companies had hoped. China has simultaneously become the greatest boon and the biggest disappointment...
What went wrong? In part, American businesses assumed that a wealthier China would look like, well, America, says Paul French, a longtime Shanghai-based analyst with Access Asia-Mintel. He notes that Chinese consumers have spent far less than expected, and the money they do spend is less likely to be spent on American goods...
Yet probably the greatest barrier to Chinese consumption is the policy of China's Central Bank. Every month, the United States buys around $35 billion in goods and services from China and sells around $11 billion back. That, of course, leaves a $24 billion trade deficit. Currencies work like any other salable good in that they adjust based on supply and demand. Every month, the United States is demanding a lot of renminbi and China is demanding few U.S. dollars. The natural result should be for the dollar to get weaker as the renminbi gets stronger.
But China's government prevents that adjustment by artificially increasing the demand for dollars, spending much of that $24 billion surplus on U.S. Treasury bonds. This sounds boring, but it effectively makes all Chinese exports somewhere around 25 percent cheaper and all U.S. imports to China, effectively, about 25 percent more expensive. Sure, we get to buy cheap stuff made in China, and by selling so many Treasury bonds, our interest rates — like those for credit cards or mortgages — are lower. But the long-term impact is disastrous. Many economic analysts, from Dean Baker on the left to David Boaz on the right, argue that all that easy money from China helped make the housing bubble much bigger and last longer, which created a far bigger crisis when the bubble finally burst.
The currency intervention also functions as a massive inequality-creation machine. U.S.-based behemoths, which own or use many of those exporting Chinese factories, benefit, as do their shareholders. And because more than 90 percent of U. S. stocks are owned by the wealthiest 20 percent, the spoils are disproportionately concentrated at the top. Meanwhile, lower wages, lost jobs and crippled manufacturing employment fall on the less wealthy. The economists that I spoke to estimated that China's currency policy has cost the U.S. between 200,000 and 3 million jobs...
Now is a particularly good time to put pressure on China's economic planners. Many market analysts fear that China's economy is slowing down considerably, a prospect that suggests the country will keep the renminbi weak for years to come. Given this, it may seem odd that China's currency policy isn't the beginning and end of every single political stump speech. After all, it's probably the one thing that, if changed, could instantly bring both jobs and more equality to this country. I can't think of any other economic agenda that would receive the support of unions and big business, free traders and protectionists, Wall Street Occupiers and Tea Partiers.
Read the full column here. [Copyright 2012 National Public Radio]
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