Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China Yuan Currency Manipulation, Free Trade versus Fair Trade

Currencies / Market Manipulation Oct 05, 2010 - 08:04 AM GMT

By: Jim_Farrish

Currencies

The fantasy of forcing China to float the yuan against the dollar is building steam. There have been attempts to persuade the Chinese government to this end, but they have not listened, nor do they really intend to act. The yuan has floated higher by 1.8% over the last five weeks, but that is a pittance compared with the destruction of the dollar by US policy, in an attempt to devalue the dollar in hopes of exporting more goods.


The attempts by Washington on China and the yuan is understandable, and what is taking place by manipulating the yuan is wrong. Force is not the tactic that will work with the Chinese government. Reverse the roles. Would the US be bullied in the same situation? A fairly valued yuan would help the trade deficit and it would benefit China relative to domestic inflation. The US being portrayed as a bully won’t get us to the desired outcome.

Congress attempted last week to pass a bill to force the issue of a fairly valued yuan, but force never really works in these situations. The penalties for not adhering to a “fair” valued currency- across the board tariffs. Exchanging tariffs only hurts the US further. I say exchanging because that is how it will play out. Will the tariffs make Americans feel better? Absolutely, but they will only exacerbate the situation. In fact, if the World Trade Organization were to determine these actions as inappropriate the potential of a trade war would arise. A trade war would not be good for the US.

Step back and think for a second. If the yuan were not pegged to the dollar and it was fairly valued according to all the estimates, what would be the impact? The cost of goods from China would rise overnight. Since everyone likes to bash Wal-Mart for importing everything from China, they would have to raise prices equal to the imported inflation of the rising yuan. Does this directly impact Wal-Mart? Absolutely, but the consumer is the bigger loser in the end. The consumer who is already stressed receives more in the form of price increases. No doubt this is a growing problem and one to be dealt with. Passing laws on currency is probably not the best solution.

In dissecting the trade imbalance with China, there are plenty of issues other than the yuan. China’s discrimination against high-tech imports, manufacturing, and human rights are just a few. There is a broad spectrum of issues facing China and trade with the US. Focusing on equal access to China’s markets are equally if not more important than the yuan. The push towards high-tech innovation by China is being done with subsidies and discrimination against foreign companies. That is a clear violation of World Trade Organization rules. The US Steelworkers recently filed a complaint against the subsidies relative to clean energy technology. Following the rules and enforcing them relative to free or fair trade is the route for the US. Attacking China with force will only backfire on the US.

Using the paths set up for dealing with discrimination is a logical course of action for the US. Like it or not, we are seen as the big bully on the playground. This puts the challenge squarely on the administration to enforce the rules. In fact, Austan Goolsbee, the administration's chief economic advisor, is committed to getting China to play by the rules. For the sake of free/fair trade it is vital to do so.

The S&P China ETF (GXC) broke out of the 15 month trading range to hit a new high last week. The interest level in investing in China is growing despite all the talk about fair trade, yuan/dollar valuations and trade deficits. As an investor we have to look at how to make money from these situations as the resolutions evolve. Singapore (EWS) and Hong Kong (EWH) are moving higher as benefactors in the region. If the yuan is going to float against the dollar WisdomTree Chinese Yuan Currency ETF (CYB) may be an opportunity as well. UDN, Powershares US Dollar Bearish ETF has definitely been an opportunity over the last four months. If and when the resolutions to the current situation between China and the US are resolved there will be more opportunities created.

Jim Farrish is the Founder and Editor of SectorExchange.com and TheETFexchange.com.  His primary goal is to educate people about investing.  He has taught workshops locally and nationally for over 25 years, teaching thousands of individuals, business owners, and advisors how to focus on achieving financial independence.  Jim Farrish is the CEO of Money Strategies, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Money Strategies, Inc., web site.

© 2010 Copyright  Jim Farrish


© 2005-2019 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