IRONY, Made in China
Posted by SCapozzola on June 11th, 2008
As the latest Strategic Economic Dialogue (SED) approaches next week, China complained in Geneva on Monday that the United States has recently let the dollar depreciate, upsetting the global economy with higher oil prices.
Ironically, the United States functions as an open, free-market economy. The dollar’s decline has come because nervous investors, eyeing ever grater U.S. trade deficits, have lost confidence in the sharpness of U.S. assets. Thus, the “invisible hand” of the market is moving the dollar to a lower point. Despite Beijing’s assertions, the U.S. government has not specifically maneuvered the dollar’s fall.
However, China’s currency, the Yuan has been specifically manipulated in recent years. Since 1994, Beijing has deliberately undervalued their currency in order to promote exports. Thus the irony of China lecturing the U.S. for higher oil prices due to a weakened dollar.
Funny that China is expressing concern over rising gas prices. While U.S. manufacturers are undoubtedly feeling the pinch, Chinese manufacturers are enjoying a comparatively easier ride. That’s because they receive huge government energy subsidies that lower the costs of production.
Take Chinese steel as but one example. A recent study commissioned by AAM found that since 2000, the Chinese government has exponentially boosted the country’s steel output by providing more than $27.11 billion in subsidies for thermal and coking coal, electricity, and natural gas. In that time, China has moved from a net steel importer to the world’s largest steel exporter.
It remains to be seen what the WTO thinks of these subsidies. But with a Chinese delegation coming to the U.S. next week to hector the Administration about falling currency and rising oil, one can’t help but shake their head at Beijing’s gall. Treasury Secretary Paulson should point a stern finger at China and simply ask them to explain their energy subsidies. China’s concerns seem a bit hypocritical by comparison.
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June 23rd, 2008 at 9:51 pm
The Iron Fist of Government: China’s
Controlled Market Economy
By Gabor Steingart
US officials like talking about free market economies doing free trade, but our todays global economy is anything but free. In the competion beween the US and a guided economy like China there is no such thing as free trade.
The state plays an important, perhaps even the deciding, role in
the redistribution of wealth and power, even in the West. It ensures that all companies whereever they come from find a level playing field for their investment. Child labor is baned in Missippi and in North Dakota. Federal tax laws are designed for Microsoft and for the medium sized carpart factory in Ohio. The government ensures that the productive core of the economy makes a portion of its wealth available to society as a whole. The state serves as the relay station for the diversion of funds from the sphere of production into those sectors of the country devoted entirely to consumption.
The state serves a different function in China. It inserts itself, like a fireproof layer, between the core and the crust, ensuring that nothing can escape from the red-hot core to the perimeters. The labor market in China today is the world’s most ruthless when it comes to employee welfare. Also if it comes to rules and regulation for foreign companies the Chinese government is not interested in leveling the playing field.
Even deaths are tacitly accepted in Chinese economic life. According to Western estimates, there were roughly 100,000 fatal industrial accidents in 2007, including about 10,000 in the mining industry. These are the biggest casualty figures that have ever been reported in the country.
Also public health is heavily crippled. Pollution has made cancer China’s leading cause of death, the Ministry of Health has announced.
The use of child labor plays an important role in export promotion, an essential component of the Asian economic miracle. About seven million children are sent to work in China, and about 130 million in all of Asia. They weave carpets, haul heavy loads, and assemble plastic parts to make plastic toys, but most of all they pull down the cost of labor.
Additionally, the state extends its protection of its productive
core beyond the domestic front, taking great pains to do so on
the international stage. One of the first steps it takes is to use a
currency that is not freely convertible. By fixing an artificially low
exchange rate for the Renminbi, the Chinese government has
constructed a protective barrier that has served the country well.
Foreign capital can enter the country with relative ease, but get-
ting it back out is another story. The Chinese currency’s value rep-
resents the biggest export promotion program a government has
ever funded.
The main difference between the US and China is this: The productive core of China can depend on the state for protection. The producitive core of the US can not.