Hypocrisy is the defining element in all the wrangling over China’s currency.
The debate seems deceptively simple: As China booms and America implodes, how much blame does Beijing’s undervalued currency get for chronic US unemployment? China says none — it’s a developing nation and needs to create the hundreds of millions of jobs to keep the peace and satisfy its citizens. A vocal chorus in Washington says China’s trade advantage hogs all the growth.
The trouble with these disparate views is that they are both partly correct. The yuan does hinder growth, as Federal Reserve chairman Ben Bernanke points out. It’s “blocking what might be a more normal recovery process in the global economy,” he said last week. Meanwhile, the risks of social upheaval in China are rising. Subsidizing exports is an obvious way to avoid it.
The real question is: What can Americans do? Three things: Blame the Jon Huntsmans in their midst, focus on trade access and rediscover their entrepreneurial soul.
The doublespeak from Corporate America is breathtaking, and few personify it better than Huntsman, the Republican presidential candidate. As Huntsman pledges to create millions of American jobs and touts his business acumen as proof he’ll deliver, the namesake Huntsman Corp., a chemical maker, plays down the central role that cheap Chinese labor played in building a fortune partly “Made in China.” After the United States, China is Huntsman’s biggest market.
Sure, Congress can slap tariffs on Chinese goods. More success may come from naming and shaming the politicians, business leaders and companies making piles of money by moving jobs to China and, out of the other side of their mouths, demanding lower taxes and denouncing President Barack Obama as an economic simpleton. The United States long championed the globalization model that it now blames for its woes.
Hypocrisy is also at play in how Bernanke and his Chinese counterparts are embroiled in a race to the bottom.
“It’s pretty evident that a weaker dollar is part of US policy, so they are hardly in a position to throw the first stone,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “Even though China overtly manages its currency, a stronger yuan isn’t going to bring back the jobs American companies willingly exported.”
Perhaps the real indignity for Washington is that, as it ponders a trade war with its biggest creditor, China is winning the currency war. Lawmakers facing re-election next year will find China a convenient scapegoat for bad economic data. For all its growth, China’s model isn’t benefiting the world as some had anticipated. Market access, not exchange rates, is the critical issue. If the yuan jumped 30 percent tomorrow, Germans would sell more cars, French more wine and cheese, Italians more shoes and handbags, Australians and Canadians more raw materials. The United States would sell China more soy, corn, cotton and apples. What kind of wealth does this trade create as companies move jobs to China?
Apple would love to sell more iPads and iPhones in China. But then, much of the content in these products is made by low-wage workers there who can’t afford the finished goods. And Americans would lose it if the cheap wares they gorge on suddenly shot higher in price. Corporate America will just shift jobs to India and Vietnam if costs in China go up.
Here, it’s worth noting a recent report from the San Francisco Federal Reserve Bank. Economists Galina Hale and Bart Hobijn argue that “Made in China” isn’t taking over US consumption as much as believed. Of every dollar US consumers spend on a Chinese-made product, about 55 cents pays for US services.
The real issue is US companies creating jobs at home and gaining access to Chinese markets. It’s challenging for US corporations to compete in China, bid for contracts and protect intellectual property. China lavishes advantages and subsidies on national champions and limits access of foreign financial firms. Corruption complicates business.
Valid concerns all around and none hinges on the dollar-yuan rate. If the United States could compete on even terms, there would be ample money to be made in China and jobs would be created back home. Sadly, Congress is more obsessed with exchange rates than trade talks that might boost job growth.
China’s ascent should spur and motivate the West. Earlier this year, Obama called China’s rise another “Sputnik moment,” recalling how the Soviet Union’s 1957 space launch unnerved America. The United States needs to relocate the entrepreneurial passion that made it the biggest economy and created some of the best companies.
The extraordinary reaction to the death of Apple’s Steve Jobs reminds us how America loves its innovators. China’s growing influence should be a call to arms to do what the United States has typically done best. Rather than being inspired to think big or forced to reconsider their unreflective policy stands, many US lawmakers are pointing fingers eastward.
It’s hypocritical to blame China for what ails America’s economy. If you think currency rates alone are going to restore US prosperity, think again.
By William Pesek Bloomberg View columnist.
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