Twenty-five years ago the USA forced Japan to appreciate its currency in order to correct its own bad books by fixing (temporarily) America's current account deficit. The Plaza Accord of 1985 led to rampant speculation in the Yen and a financial crisis and depression from which the Japanese have yet to recover. From the sidelines, having secured the return of Hong Kong and its capital, Beijing watched and learned.
Since the dotcom bubble popped and jobless recoveries, booms, and busts have America stalled, certain political factions believe that if Uncle Sam can force a similar appreciation of the Yuan on Beijing the American Dream can be saved. Chief among the politicians is Chuck Schumer (D-NY) and his chorus of taxpayer funded think tank reports and leading talking heads. One of the biggest proponents of the China tariff clique is Nobel Prize winning economist Paul Krugman. Krugman used his NY Times column again today to call for tariffs on Chinese goods
deciding that one lesson from the Great Depression - the Smoot-Hawley Act - is not worth heeding.
I've written many posts and Sinomania! Show episodes on the futility of trying to force Beijing's hand on Yuan. Do a search here and on the Sinomania! website and you'll come up with the same conclusion. America cannot fix its problems by manipulating international forex markets. Beijing unlike Japan is not America's satellite and cannot be told what to do and is not afraid of Washington. And the biggest reason why people like Krugman and Schumer know that the issue is just hot air is not the "threat" of a "nuke option" - Beijing selling its holdings of US Treasury securities - but because the average American mired in a deep recession can't afford to pay two and three times for all the stuff they buy from WalMart, Target, IKEA, and everywhere else!
Labels: currencies, financial crisis, forex, free trade, japan, schumer, yuan