Hu Jintao, We Have A Problem
by Charles Mackay, Sunday April 24 2005
wallstreetexaminer.com
The US has been getting ready to impose import tariffs on Chinese textiles. The problem with placing restirictive tarriffs on trade with China is not that it is a bad idea in general, but in the way it will be implemented. It will be coming at a very bad time in the economic/credit cycle of the US, where even small mistakes may cascade the US into a steep economic recession or worse.
Because there has been so much mal-investment in the US in the last seven years, even a gradual withdrawal from trade, especially with China, would be enough to start a chain reaction of events leading to an economic downturn. The trade deficit supports the present level of the economy, any reduction in that deficit will be immediately translated into economic losses.
To a great extent, US hegemony has advanced under the cover of world trade. This has lead to the forced acceptance of the US dollar as supreme currency in the informal, but real, Bretton Woods II dollar regime.
The organizers of the present 'free trade' scheme have pushed it far beyond the extent it should ever have gotten. In the long run, China was never going to fall under US hegemony or influence, and was always likely to eventually turn on the US. The war in Iraq is also a bridge too far on the level of military spending that can be supported indirectly by foreign governments through their central bank purchases of the US dollar.
Until recently, the US dollar system operating under the cover of free trade had been one of the most efficient empire building systems in the history of man. Sure, a few outliers rebelled, but most of the world bought into the plan. It was just pushed too far. Now, in view of the over reaching of the free trade scheme, and backlash in the form of the emergence of new trade barriers, probably nothing will stop the present world trade system from changing fom one that is dollar based, to someting else.
D-Day, decision day to find whether China is interfering in its foreign exchnage rate must come by this Friday, per US law. Unless China is willing to start a trade war immediately with the US, it will offer some concessions before then.
The odds are small, but there is a chance they will revalue the renminbi by Friday. What is more likely is that Congress will not be satisfied until China gives much more.
With foreign central banks now cutting way back on dollar purchases in April, the dollar is like Wile E. Coyote making a rapid overshoot of the cliff -- about to get an anvil on his head in the form of a renminbi revaluation.
posted Sunday April 24, 05 17 PM ET |
