Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

United States versus China Round Two

Politics / Protectionism Oct 07, 2011 - 12:36 PM GMT

By: Richard_Mills

Politics

Best Financial Markets Analysis ArticleThe Chinese government, in an effort to maximize exports and minimize US imports, prints their Yuan to buy dollars. This prevents their currency from rising and the dollar from falling. Then it loans those same dollars back to America by buying US debt.


At the same time China:

  • Puts in place purchasing restrictions
  • Permits piracy
  • Delays legitimate items from entering the country
  • Provides massive direct subsidization of export production in many key industries
  • Maintains strict non-tariff barriers to imports

China was the United States' largest supplier of goods imports in 2010 - goods imports from China totaled $365 billion, a 23.1 % increase ($68.6 billion) from 2009, and up 841% over the last 16 years.

The U.S. goods and services trade deficit with China was $219 billion in 2009 - in 2010 just the U.S. goods trade deficit with China was $273 billion.

U.S. exports to China accounted for 7.2% of overall U.S. exports in 2010 while U.S. imports from China accounted for 19.1% of overall U.S. imports during the same time period.

The American Congress is facing a restless, very concerned, and increasingly vocal American public. Lawmakers in both the Senate and House are blaming China for the loss of US jobs and are pushing for legislation (Currency Exchange Rate Oversight Reform Act of 2011) that would force China's currency, the Yuan, to rise against the US dollar. If approved by Congress, the CEROR Act would force the US Treasury Department to formally tag China as a currency manipulator, this would allow the US Commerce Department to impose duties and tariffs on imports.

With elections in 2012 and the Obama Administration vulnerable - this author believes President Obama is deeply vulnerable to a 2012 election threat from the GOP fielding their heir apparent Mitt Romney or the incredibly charismatic Rick Perry - there exists the possibility that President Obama will try to penalize China for its large bilateral trade surplus with the U.S.

Obama has promised repeatedly to get tough on China over its currency practices. James Zhang, from the University of Newcastle in Australia, says a 20 percent rise in the Yuan would contract the Chinese economy by 12 percent.

  • Tuesday 6 October 2009 1 USD = 6.8312 CNY
  • Wednesday 6 October 2010 1 USD = 6.6994 CNY
  • Thursday 6 October 2011 1 USD = 6.3751 CNY

China's Problems

Capital controls and trade restrictions have been absolutely necessary for China to reach this stage in its economic development. The country's economic development is largely driven by fixed asset investments (FAI - fixed assets include items such as land and buildings, motor vehicles, and plant and machinery). China's fixed-asset investments rose 25 percent year-on-year to hit 18.06 trillion Yuan (2.83 trillion U.S. dollars) during the first eight months of 2011.

China is able to invest so much into FAI because, in addition to the inflow of foreign direct investment (FDI is a measure of foreign ownership of productive assets, such as factories, mines and land) its citizens have a very high savings rate as a percentage of income. Because of controls on how and where they can invest that money, Chinese savers have little choice but to invest at home.

If China were to lift its capital controls the resulting outward savings flow seeking higher and safer returns overseas would cause China's economic growth to stall because, the largest by far, of its two major engines of growth, FAI, would simply run out of money.

"Export industries employ so many people, and a drop in exports would mean a rise in unemployment which could cause very serious social unrest. Social stability is Chinese leaders' top priority, and the way to achieve it is fast economic growth to keep people working." ~ Xiang Songzuo, deputy head of the International Monetary Institute at Beijing's Renmin University

The Chinese Communist leaders have to feed, clothe and house untold millions of urban residents and hundreds of millions more rural residents moving to urban areas over the next couple of decades. Their biggest fear is social unrest leading to an overthrow of their communist regime. US lawmakers on the other hand are facing elections and nothing is more important to a politician than getting reelected.

This dispute over Chinese currency reevaluation is just the harbinger, the tip of the ice-burg, of what's to come in the future US-China relationship.

Potential areas of conflict include:

  • Trade disputes
  • Conflicts over resources
  • Geopolitical disagreements
  • Intellectual property rights
  • Chinese acquisition of US companies

Conclusion

The US has, so far, been cautious of pushing China too hard on the revaluation issue, that might change.

"China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States. Currency manipulation is one example of it." ~ President Obama at a recent news conference

This is an extremely interesting drama being played out on the world stage between two of the world's most powerful nations and economies, it should be on everyone's radar screen. Is it on yours?

If not, maybe it should be.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about specific lithium juniors and the junior resource market in general please come and visit us at www.aheadoftheherd.com. Membership is free, no credit card or personal information is asked for.

Copyright © 2011 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in