CLOUDS OVER CHIMERICA
Dependence paralyzes superpowers. Washington urges Peking to upgrade its currency which China’s economy cannot handle
By Tomasz Konicz
[This article published in: Junge Welt 3/20/2010 is translated from the German on the Internet, http://www.jungewelt.de/2010/03-20/024.php?print=1
Dark clouds are gathering over “Chimerica.” With this term formed of the words China and America, the economic symbiosis between the United States and the People’s Republic of China is described in the Anglo-Saxon media. Its main characteristic is a gigantic Chinese trade surplus with a parallel growing US indebtedness toward Peking. This teamwork now seems seriously in question. The US administration strongly urges an upgrading of the Chinese currency that would raise the prices of exports of the new “export world master” to the US and make them less lucrative.
Only a few hours after the public protestation of Treasury Secretary Timothy Geithner that the US and the People’s Republic are in no way “headed for a trade war,” economists of Credit Suisse published an analysis according to which such a conflict is more likely today than at any time “in the past five years.” At the end of the People’s Congress on March 16, 2010, China’s Prime Minister Wen Jiabao again rejected demands to upgrade the Yuan national currency. Subsequently a group of influential US senators launched a legal initiative to impose penal duties against Chinese goods.
What is the issue? In 2009 the United States imported so many goods from China that a deficit of $226 billion resulted in relation to US exports. Despite the worldwide economic crisis, the minus stays at an extremely high level. (The all-time record of Chinese trade surpluses toward the US was reached in 2008 at $268 billion.) In January 2010 the Chinese sales overhang skyrocketed to more than $18 billion. The result is a continuous indebtedness of the US.
Still Chinese institutions and politicians repeatedly warn of the disastrous consequences of an upgrading of the Renminbi (“people’s money.” The unit is the Yuan). In an exclusive interview for The Wall Street Journal, the acting trade minister Zhong Shan declared: “A very small rise of the Yuan could cause fundamental changes.” The Washington Post repeated the estimates of Chinese trade organizations close to the government that the profit margins of businesses on average would be only around three percent. An increase of the Yuan would be “a disaster for the labor-intensive Chinese export branch.”
This industry represents a large part of the Chinese growth miracle kept alive in large part despite growing domestic demand by the excessive US indebtedness machine. In February 2010 alone the state accumulated a deficit of $220 billion. As the German newsblog Wirtschaftsquerschuss reported, US tax revenues of $107 billion in February 2010 only covered 32 percent of state expenditures that amounted to $328.5 billion. At the beginning of the fiscal year in October 2009, the budget deficit climbed to $651 billion, an increase of 10.5 percent compared to the previous year. In the 2008/09 fiscal year, the US had piled up a deficit of $1.41trillion. This contracting of debts will be accelerated through more economic- and job-creation measures that were passed just before the congressional elections and will amount to $38 billion.
Washington prevents the economic collapse of the US with the demand created through this gigantic indebtedness orgy. But that cannot function for ever. The US administration now tries to abandon its fiscal-political suicide course by strengthening the industrial sector with a desperate maneuver. Within five years, the volume of exports should be “doubled” and “two million jobs” created in the export industry, President Barack Obama said at the beginning of March 2010. This new US economic strategy includes creating financial incentives for businesses and establishing an export council. At the same time international pressure will be exerted: “Countries with a foreign trade surplus must strengthen consumption and domestic demand,” Obama urged with view to China. Obama did not say how a Chinese export industry suffering under falling profit rates should do this since it can only maintain its co0mpetitiveness thanks to maximum exploitation of its workers.
The question is raised what the US can export after decades of an insidious de-industrialization. In the final analysis, US industry will never recover from the crisis of the 1970s. Only the constantly booming financial sector can drown out the malaise of processing plants through credit-generated demand, the number of industrial employees in the US declined from more than 17 million in 2000 to 11.5 million in 2009. Job-creating schemes and economic programs in the trillions renewed by the government have not led to any significant stimulation of the economy but only prevented its crash.
TRADE WAR THREATENS
US: China Bashing Wins Congressional Elections. Peking Warns Washington of Protectionism
By Kurt Mellenthin
[This article published in: Junge Welt 3/22/2010 is translated from the German on the Internet, www.jungewelt.de.]
China has warned the US against protectionist measures in trade between the two countries. The occasion is the increased pressure from Washington on China to upgrade its currency and use of tariffs against Chinese imports. “We will not close our eyes,” said trade minister Chen Deming on Sunday at the economic conference in Peking. China could take counter-measures, he added.
Leading circles of the US argue China gained crucial competitive advantages in foreign trade through the “undervaluation” of its national currency, the Yuan. In 1995 Peking coupled the international price of the Yuan to the dollar. That bond was annulled in 2005 because of US pressure. In the following period, the value of the Yuan rose 20 percent. China returned to the coupling during the 2008 worldwide financial- and economic crisis.
Since September 2009, the US government has imposed tariffs with differing levels on a series of imported Chinese goods. These included auto tires, steel pipes, coated paper, films, potassium-phosphate salts and coated wire shielding. The alleged subsidy of these products by the Chinese state is cited as a reason for the punitive measures.
The conflict caused above all by the considerable deficit of the US in trade with China was intensified in the middle of March 2010 by the US Congress. Five senators from both parties introduced a bill to simplify suits against states for alleged false valuation of their currencies and impose sanctions against them. Current rules only allow this when a deliberate manipulation was imputed to the respective government. With this reservation, the Treasury Department omitted mentioning China in its bi-annual reports about exchange rate falsifications since 1994. Inclusion in this report resulted in an official investigation and possible punitive protectionist measures. The intent-clause is omitted in the new law.
The leading petitioner is the Democrat Charles E. Schumer from New York who beside his activity for the Israel lobby has for years led campaigns against China. In 2005 Schumer pushed a similar bill but withdrew after China floated the exchange rate of its currency.
A harassing fire against American-Chinese relations also comes from the House of Representatives. Last week 130 representatives from both parties turned to Treasury Secretary Tim Geithner and Commerce Secretary Gary Locke with an open letter. Geithner is urged to sue China for currency manipulation in its latest report due in the middle of April 2010. On this basis the US government should force China to upgrade the Yuan “through a combined strategy of legal actions and international pressure.” “If these efforts are unsuccessful, we urge the government to consider all the instruments at its disposal including levying tariffs on Chinese imports,” the letter of the representatives says.
On November 2, 2010, there will be congressional elections in the US. All 435 representatives and 36 of the 100 senators will be chosen by the voters. On the backdrop of the continuing economic crisis and ten-percent unemployment, propaganda against China is an absolute necessity in the election campaign. This propaganda will increase in the coming months. The Obama administration that seems aware of the potential damage through a trade war will hardly be able to resist the populist pressure from the Congress.