The overseas edition of The People’s Daily, the state-run mouthpiece of China’s Communist party, weighed-in last week on America’s “financial tsunami.”  Lamenting the current “sub-prime crisis,” which has “exposed massive loopholes in the United States’ financial oversight and supervision,” the Daily suggested that the “world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States.”

How noble indeed, but loaded with rather considerable irony…

Beijing has pegged its currency, the Yuan, to the U.S. dollar since 1994, which essentially means that China has lashed its mast to that of the U.S. economy for fourteen consecutive years.  Such interdependence has obvious implications, not least the unlikeliness of a “diversified currency” system.  If China now frets about a falling dollar or market instability, the point is rendered moot by their having preferentially locked themselves into a fixed relationship with the U.S.

Many U.S. lawmakers, as well as business and labor leaders, have vociferously protested China’s ongoing currency peg, which acts as a de facto subsidy for Chinese exports.  The EU, too, has grown weary of China’s market manipulation, and has called on Beijing to end the practice.

All this currency rigging has had a profound effect on the world economy, with a number of disturbing consequences.  Currency fixing and huge energy subsidies have enabled China to vault atop the world’s list of steel producers while simultaneously becoming the largest producer of both CO2 and SO2 gases.  And since 2001, unbalanced trade with China has cost the United States 2.3 million jobs, at a loss in wages estimated at $19.4 billion in 2007 alone.  China’s ongoing trade surplus has also helped it rack up $1.8 billion in foreign currency reserves, allowing it to be one of the chief purchasers of debt from Fannie Mae and Freddie Mac.

Bottom line: China is quite complicit in many of the woes currently roiling world markets.  And so it’s quite rich of them to complain about instability in the U.S. after they helped get the ball happily rolling.  Thus, if U.S. lawmakers can’t get China to change its cheating ways, the proper recourse is to take unilateral action and utilize existing trade law to break the cycle.

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This entry was posted on Monday, September 22nd, 2008 at 9:01 pm and is filed under Holding China Accountable, Economic Security. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.