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Another story about an impending trade war between China and the US.

The U.S. Congress is considering legislation that would treat what lawmakers call China’s undervalued yuan currency as an export subsidy, a step that would give the U.S. Commerce Department increased ability to slap duties on Chinese goods.

The U.S. House of Representatives is expected to pass the bill this week, but its future in the Senate is uncertain.

“If we take this additional step, it’s going to continue this downward spiral,” Tim Stratford, a former U.S. trade official who was part of a delegation visiting Washington from the American Chamber of Commerce in Shanghai, told reporters.

This time at least there is a balanced look at the story, maybe even leaning toward criticism of the legislation. One story told there is about how China retaliated when Obama placed tariffs on Chinese tires last year. China placed tariffs on American chicken parts and a few US firms lost loads of money.

My mind always turns to the benefits of importing lower priced goods. Not only does that allow people to save or to buy more, it increases demand for all kinds of other goods and services. That can mean more jobs in other industries, more profits, and a better standard of living.

China is accused of attracting more customers by keeping the value of their currency artificially low. We should be thanking them for that.

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4 Comments

  1. Charging more tariffs can lead to an increase in government’s tariff revenue. That is why the US gov. decides to impose more on China’s tyres.
    Tyres are necessities to the US, the demand is inelastic, so rising price will not result in considerable fall in quantity demanded..

  2. PS. Do u understand the meaning of the picture?

  3. I like the provoking idea. But in particular about the last sentence I have a different idea. For sure, the lower the Chinese Yuan, the cheaper the Americans can go shopping in China. But –assuming it is true that the Yuan is undervalued- is it the obligation of the Chinese to subsidise the shopping pleasure of the Americans?

    The price the Chinese, and all of us living in China, pay for helping the Americans is considerable.
    First, the lower the Yuan is valued, the more expensive for everybody living in China to buy foreign goods and to travel abroad. For a set of foreign –American- loudspeakers I paid 3.000 Yuan, for a chair imported from America 11.000 Yuan were demanded. I didn’t buy it. The tasty local food just around the corner here in Tianjin for just three Yuan a meal stands in stark contrast. The former is too expensive, the latter too cheap.

    Even more important than the imbalance between the price of imported and local goods is that the low valued Yuan doesn’t give any incentives for China to develop from the factory floor of the world into a highly developed service economy. That only Shanghai is a service city is not enough. What about all the highly qualified Chinese university graduates most of whom cannot get appropriate jobs. That is not the service economy China should develop into. The cheap Yuan permits the Chinese entrepreneur-class to continue producing rather simple goods and exporting them without thinking about innovation, without having to employ young engineers to develop better and better products. Instead they employ unskilled workers to produce the simple goods America likes to buy so much.
    But America for sure would be willing as well to buy highly developed Chinese goods – those high-value goods China needs to develop and produce in the future to continue prospering.

    Chinese people have been among the most innovative in the world just 500 years ago. There is no reason to believe that in the 500 years in between the grand-grand-grand-…-children of these medieval Chinese innovators have completely lost the ability to invent. Just look at the Japanese. Yes, in the first years after the war they copied a lot, took pictures from European automobiles from all angles, even to the point of being feared at international exhibitions. By many other countries the Japanese got belittled at the time. But then, during many years of rapid economic development, surely also spurred by a stronger currency, they developed into one of the most innovative economies and one of the idea-factories of the world. Why not give China a similar chance. Let the yuan rise and ideas will sprout in China’s factories.

  4. (OMG.The upper comment is quite long…0,0)
    Well, setting a suitable policy of international trades is very vital for a country. If every country lower down the price o a certain good, as what you mentioned, it might hurt other countries’ economy. As a result, these countries are in passive state because they have to rely on the import of this good. This will reduce these countries’ sovereign rights.

    Besides, it is also not appropriate to welcome the harsh protectionism, like setting high tariffs or limitations for exported goods, as this will lead to the lose of effectiveness in comparative advantages and to the retaliation between countries,which can definitely cause destruction to both sides.
    In my view, the best way is to negotiate from each country through WTO and reach an agreement on the export and import policy.


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