... did someone blink?
I think the so-called option is a non-starter, and will do nil. Stratfor is grasping at less than nothing, because it makes no difference whether US companies invests in China or not, it only matters whether China-based companies export or not. By making it marginally more problematic for US companies to invest in China, as opposed to source from China-based production, only US companies will be hurt in the long run, by having no equity stake in what goes on in China, but still benefit in the here and now by sourcing from Japan-owned and everybody else owned China manufacturing.
Calling politicians morons is being kind to them, better then naming them as economist, I suppose :0)
All of the nonsense of trade deficit will be sorted out by the good old fashioned RECESSION of the deep cleansing type, leading to galaxy-eide re-pricing ;0)
Stratfor: U.S.: A New Option on Dealing With the Yuan
Summary
Now that the U.S. Senate is postponing the vote on a bill proposed by U.S. Sens. Lindsey Graham and Charles Schumer that would impose 27.5-percent tariffs on Chinese imports, U.S. Sens. Charles Grassley and Max Baucus have unveiled their own proposal on dealing with China. This new proposal is likely to pass and will preserve the image of a Congress that is tough on China. However, this bill gives the administration an easy way to continue postponing any action on China. Washington will not make any significant moves on Beijing anytime soon, and sparks are not likely to fly during U.S. President George W. Bush and Chinese President Hu Jintao's mid-April meeting.
Analysis
A U.S. Senate vote on the tough bill proposed by U.S. Sens. Lindsey Graham and Charles Schumer, which would slap 27.5-percent tariffs on all Chinese imports, will be postponed. This news comes after the two senators visited China and claimed to be "optimistic" about China's future and the revaluation of the yuan. On March 28, Senate Finance Committee chairman U.S. Sen. Charles Grassley and U.S. Sen. Max Baucus, the committee's leading Democrat, unveiled a proposal for legislation that would address China's "currency manipulation." The legislation is likely to pass, but despite its tough rhetoric the bill actually will allow business to continue as normal.
The unveiling of the new Grassley-Baucus bill comes prior to Chinese President Hu Jintao's meeting with U.S. President George W. Bush, slated for mid-April. Like the Graham-Schumer bill, it is meant to goad the Chinese into action. However, the new bill does not require the administration to take any immediate steps. Therefore, in the Hu-Bush meeting, current conflicts over currency revaluation will not erupt.
The new Grassley-Baucus bill, while focusing on the revaluation of the yuan, takes a different tack from the Graham-Schumer bill. The Graham-Schumer bill proposed a general 27.5 percent tariff on all Chinese imports if China did not revalue the yuan. Such a move would go against World Trade Organization (WTO) rules of trade. The Grassley-Baucus bill does not propose such sweeping action, and does not go against WTO rules by imposing indiscriminate tariffs. Under the new proposal, if a country is accused of "currency misalignment," retribution will take various forms. Sanctions under the Grassley-Baucus bill would include blocking the country's voting rights at the International Monetary Fund, and limiting insurance and guarantees for U.S. investors given by the Overseas Private Investment Corporation.
The new proposal gets around a problem faced by other bills aimed at China: the U.S. Treasury's reluctance to brand China as a "currency manipulator." Under current rules, the Treasury must show that the country purposely intends to undervalue its currency, which has been difficult. Other bills focused on the title "currency manipulator" as their impetus for action. The Grassley-Baucus bill, however, suggests hinging action on "currency misalignment." Even if a country does not intend to undervalue its currency, a misalignment may still exist, prompting the administration to be decisive. The Grassley-Baucus bill proposes setting up a new assistant secretary position in the Treasury to identify currency misalignments.
This bill maintains Congress' tough China stance -- there is no doubt that Washington will be able to find misalignments in U.S.-China trade and be prompted to action. However, the new proposal would give the United States six months after a misalignment is identified to determine whether the country is making progress toward addressing the misalignment before taking action. The term "progress" is left intentionally vague, allowing the administration considerable room in determining its definition. This strategy allows Congress to keep its tough image while temporary diffusing tension with the business interests that would be undeniably hurt by the Graham-Schumer bill. Furthermore, business interests will likely have more say over what determines "progress" as outlined by the Grassley-Baucus bill.
There is only one catch: If the bill is fast-tracked -- an unlikely scenario, given both its sensitive nature and the entrenched business interests opposed to such a move -- and then passes within the next two months and is acted on immediately, it would affect U.S. congressional elections in November. A new battle focused on Sino-U.S. relations would ensue prior to elections. Based on current trends on similar bills, this one might sit around for a while before reaching a vote.
Regardless, given this new scenario, it is unlikely that the Hu-Bush visit in mid-April will be very confrontational on the revaluation topic; the delay on the Graham-Schumer bill vote and the new proposed legislation have eased the pressure on Bush to be harsh on China. Bush does not have to crack down on China to maintain his own standing within the Republican party. If the Graham-Schumer bill had been voted on and passed, Bush would have had no choice but to address the sentiment and take a hard-line stance against China during his visit with Hu. Polls indicate Bush is facing a legitimacy crisis, and despite the administration's reluctance to act against China, he would have been forced to side with his party. Now, the administration has some breathing room.
Expect a normal diplomatic exchange to take place during the Hu-Bush meeting. Some tough rhetoric may fly around, but there will not be sparks -- yet. |
