Dear Senator Chuck Schumer and your esteemed colleagues, to quote a famous US President, “There you go again.” Since nothing else was working very well coming out of Congress, it was mighty clever of you to beat up on China again. It might even convince your constituents that you are doing something to right the floundering US economy.
It’s hard to know if you have any other ideas about what ails our country but you sure know to put the hurt on China by calling them currency manipulator. You started to accuse them of currency manipulation when the renminbi was 8.3 to a dollar. Somehow you figured that yuan was 40% undervalued. Now that the exchange rate is 6.3 to a dollar, or nearly 30% appreciation since China took the yuan off the peg, you believe that the yuan is still 40% undervalued. That’s the kind of dogged insight we admire in our elected officials.
It looks like you didn’t let House Speaker, Congressman Jim Boehner, in on your joke. He simply dismissed your attempt to brand China a currency manipulator as “not the way to go.” Apparently Mr. Speaker believed there are more urgent matters to deal with. But congratulations to you because this means there won’t be any downside consequences such as a trade war and you get to jerk China’s chain for free.
Has it occurred to you that the one manipulating the currency is our very own Fed, weakening the dollar by design? Paying off our massive debt with dollars of declining value is so clever on the part of our Fed, don’t you think?
As for China taking jobs away from America, you should have talks with the major multinationals headquartered in your home state. Ask them why they are sitting on the sidelines with their billions of cash and not investing at home to create new jobs.
Maybe they will tell you that the wage rate and cost of doing business in New York is just too high. Maybe they will say that the incompetence and impotence of Congress evokes so much uncertainty of the future that they are afraid to invest.
Actually China is losing jobs too. Many of the low-end, labor intensive jobs such as in textile and shoes are leaving China. Faced with economic reality, the Chinese companies in the labor intensive industries are taking the lead and locating their plants in nearby lower cost countries such as Bangladesh, Cambodia, Myanmar and Vietnam.
No way, of course, that such low paying jobs could hope to come back to America—does water flow uphill—but Chinese companies sitting on ample cash reserve would like to invest in America to take advantage of certain comparative advantages available here. As you probably know, investments of virtually any kind are good for the local economy because they really do create jobs.
However, Chinese investments face such a dauntingly hostile reception in America, thanks in no small part to creatively fanciful objections from members of Congress. As a revered member of this august body, you really can help stimulate the US economy by becoming more welcoming of direct investments from China.
Up to now, American multinationals have been the major beneficiary of trade surplus enjoyed by China. That’s because most of the inputs that goes into their plants in China are from the outside and most the profits earned when exported from China though credited to China's account ended up in the bottom line of the multinationals.
But, dear Senator, that’s about to change. Native Chinese companies, not foreign invested enterprises, have learned to move up the value chain and make products with better profit margins that are not as labor intensive. They may not be making products that can directly compete with an iPad or Tesla yet, but they can make price attractive products to sell in less demanding markets.
The Chinese companies will learn from their experience selling lower end products just as Toyota had and Hyundai had with lemons before they became fierce competitors that almost put GM out of business. The Chinese companies can count on endless supply of well trained and highly motivated graduates to fill their ranks and they can count on a government that supports their goal of becoming global companies.
Dear Senator, with all due respects, you should be concerned about the future of America but calling China the currency manipulator isn’t going to fix the problem.
An edited version ran in New America Media on Oct 14 and Global Times and on the China-US Focus blog.
See my response to video interview on RT.com.