On China, Obama says US must address currency rates

[Hilarious Clinton 452]

Sure. Blame 'artificial' influences not the wholesale printing of our currency by this administration.

WASHINGTON, Feb 3 (Reuters) - President Barack Obama said on Wednesday China and Asia would be a huge market for U.S. exports going forward but it would be important to address currency rates to ensure American goods were not facing a disadvantage.

"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our ... goods are not artificially inflated in price and their goods are artificially deflated in price," Obama told senators from his Democratic party.

"That puts us at a huge competitive disadvantage."

http://www.reuters.com/article/idUSWEN9607...ype=usDollarRpt

[The_Dude 1,142]

Yeah, that seems to be too much of a beast to handle at the moment. China has no incentive to adjust their monetary policy as it is to their disadvantage. So what recourse do we really have?

[SMR 368]

Yeah, that seems to be too much of a beast to handle at the moment. China has no incentive to adjust their monetary policy as it is to their disadvantage. So what recourse do we really have?

Well, it's a two way street. That is, exchange rates have two halves to the equation.

In any case, this isn't a joke but rather confirmation of what anyone who has been paying to Obama's economic policy already knew. Adjusting the exchange rate to favor US exporters and favor domestic producers in the US over importers means deflating the dollar with respect to other international currency. That's what all this spending is going to do.

[scandal 951]

US administrations have been calling on China to allow the Renminbi to float freely against the USD and other currencies for many years now. This is nothing new, and not particular to the Obama administration or the current US deficit situation. The Bush and Clinton administrations, and their treasury secretaries, made repeated calls for this as well.

The RMB used to be rigidly pegged to the USD. Since 2005 China has allowed it to float within a trading range but uses its central bank to keep it tightly within that target range.

Since the end of Bretton Woods all the world's major currencies have freely floating exchange rates, except for China.

The RMB is artificially kept devalued by China to promote its export economy, but this is distorting international trade. The US is right to repeatedly call on China to end this policy.

[Mr. Big Dog 10,747]

US administrations have been calling on China to allow the Renminbi to float freely against the USD and other currencies for many years now. This is nothing new, and not particular to the Obama administration or the current US deficit situation. The Bush and Clinton administrations, and their treasury secretaries, made repeated calls for this as well.

The RMB used to be rigidly pegged to the USD. Since 2005 China has allowed it to float within a trading range but uses its central bank to keep it tightly within that target range.

Since the end of Bretton Woods all the world's major currencies have freely floating exchange rates, except for China.

The RMB is artificially kept devalued by China to promote its export economy, but this is distorting international trade. The US is right to repeatedly call on China to end this policy.

Please cease to introduce facts. The America haterz don't take them well.

[Darnell 8,478]

It's a big joke, really.

Any US Manufacturer can stipulate to be paid in US Dollars for the merchandise.

Any !

There was some trend last year, as a 'test' in Shanghai, for Chinese Exporters to be paid in RMB, but that test went south, not to be repeated - too many foreign companies complained (not only us firms ) .

[scandal 951]

The Chinese economy uses the RMB. That's what counts. Salaries are paid to Chinese workers in RMB, Chinese companies balance sheets are all denominated in RMB, their tax structures are in RMB, their book values are in RMB. If their costs of production are X RMB and the USDRMB rate is artificially fixed at a devalued rate, they sell that product abroad for a higher USD rate than it would otherwise be worth at 'fair' (market set) exchange rates.

[one...two...tree 2,762]

US administrations have been calling on China to allow the Renminbi to float freely against the USD and other currencies for many years now. This is nothing new, and not particular to the Obama administration or the current US deficit situation. The Bush and Clinton administrations, and their treasury secretaries, made repeated calls for this as well.

The RMB used to be rigidly pegged to the USD. Since 2005 China has allowed it to float within a trading range but uses its central bank to keep it tightly within that target range.

Since the end of Bretton Woods all the world's major currencies have freely floating exchange rates, except for China.

The RMB is artificially kept devalued by China to promote its export economy, but this is distorting international trade. The US is right to repeatedly call on China to end this policy.

Another excellent post by Ron.

[mawilson 2,133]

Another excellent post by Ron.

You two, get a room.

[Darnell 8,478]

The Chinese economy uses the RMB. That's what counts. Salaries are paid to Chinese workers in RMB, Chinese companies balance sheets are all denominated in RMB, their tax structures are in RMB, their book values are in RMB. If their costs of production are X RMB and the USDRMB rate is artificially fixed at a devalued rate, they sell that product abroad for a higher USD rate than it would otherwise be worth at 'fair' (market set) exchange rates.

But that doesn't matter for USA exports TO China. Which is what the original post is about, ya?

[scandal 951]

From the OP:

"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our ... goods are not artificially inflated in price and their goods are artificially deflated in price," Obama told senators from his Democratic party.

It goes both ways. If the RMB is artificially pegged low, goods manufactured in the USA (where cost of production is measured in USD) will be artificially higher than the same goods produced in China (where cost of production is in RMB). That means US exporters are inherently at a competitive disadvantage, with their goods being priced higher than Chinese goods after taking into account currency conversion. All other things being equal, the Chinese consumer will prefer the domestic good rather than the imported one, because it's cheaper. Effectively the RMB peg is a form of tariff - something that is supposed to be banned by the WTO to which China is a signatory. China claims its currency peg is not a WTO GATT violation, but that's pretty hollow to anyone dealing with the economic consequences of it.

[one...two...tree 2,762]

scandal's keepin 'em honest.

[Darnell 8,478]

Doh - missed the USA Import bits. I still say it doesn't matter, that peg to the RMB. Importers will pay 'todays price' and that's it - without any thought to 'the backstory' for anything 'China Specific'.

Underlying it all is the imbalance of trade, and that's not going away anytime soon.

Also you can't ever do a 1:1 comparison on this stuff:

If the RMB is artificially pegged low, goods manufactured in the USA (where cost of production is measured in USD) will be artificially higher than the same goods produced in China (where cost of production is in RMB). because the cost of labor and raw materials is never similar to US-produced products.

Edited February 3, 2010 by Darnell

[mawilson 2,133]

I bet you don't even know what that means.

Completeness and algebraic closure, my friend.

[Hilarious Clinton 452]

I bet you don't even know what that means.

Completeness and algebraic closure, my friend.

OWNED