You'll remember from last year my ongoing tirade about currency and trade wars, and how engaging China in a game of "currency manipulator" chicken was destined to end poorly. I even wrote a letter to my Senators about it, and thought that maybe the issue would fade into the background.
No such luck. With the economy seemingly primed for another leg down, and politicians once again frantically scampering about to shift blame away from themselves, here comes the scapegoating.
After years of trying, Congress is taking another stab at retaliating against what many see as Chinese manipulation of its currency to make its exports to the United States cheaper and U.S. goods more expensive in China.
The Senate is expected to take up legislation Monday that would impose higher U.S. duties on Chinese products to offset the perceived advantage that critics say China gets by undervaluing its currency...
Beijing denies that its exchange rate is responsible for the huge trade deficit that the United States has with China, and it's not clear that U.S. lawmakers have the political will to follow through.
The Senate bill has bipartisan support and is expected to clear a procedural hurdle Monday evening. But intense lobbying against it by American-based multinational corporations and their trade associations could spell trouble for the legislation.
In addition, the Obama administration, like the Bush administration before it, doesn't like the bill, saying quiet diplomacy is a better way to influence Chinese policy and warning that overt penalties could lead to a destructive trade fight.Sigh. As a reminder, my vicious opposition to this kind of legislation has everything to do with the fact that the loss of manufacturing jobs to China is now and has always been a two-way street. The "undervaluation" of the Yuan and the cheap labor rates that U.S. corporations have enjoyed are among the only factors that have prevented rampant inflation in the U.S. over the last two decades.
The only certain consequence of protectionist legislation like this is that prices of consumer goods will increase overnight. This will ironically do the most harm to those whom it professes to support--the unemployed and the working poor. Inflation in consumer prices is something that we simply can't afford to absorb right now, and protectionist policies like this will have the same effect of the Smoot-Hawley Act, which sent us spiraling deeper into the Great Depression.
Don't believe me? Consider this chart. Higher prices--of oil, food, consumer products, or anything else--are devastating for our economy, especially for those who have been hurt most by the recent economic downturn. For more of my thoughts on the insidious effects of inflation, read this, this, this, this, and this. Or you can just read Mish Shedlock's take on the re-emergence of this zombie bill.
The scapegoating and misdirection plays (don't look here, look over there!) that our politicians insist on utilizing are a huge part of why we're in this mess to begin with, and going back to that same ridiculous playbook isn't going to help. True leadership is not performed by standing on a platform and saying "it's all China's fault"--it's performed by standing up, looking in the mirror, and saying "we're all to blame". And if we don't start realizing it now, we're never going to solve a thing in this country. It's not China--it's you (and me).
Cut this crap out, Washington. Now.
(h/t Mish Shedlock)