Let's start with the WTO.
"Diplomacy" with China (our approach) has accomplished nothing so far. They are still violating human rights. They are still not a part of any initiative to address pollution. They were never part of Kyoto. They are double-crossing us in the war on terrorism. They are using WTO to gain foreign markets for their exports, while keeping their rates pegged, and it looks as though that, itself, could be a violation of the WTO treaty. They have exploitive labor practices.. And they abuse child labor.
And all of those problems create not only moral issues, but they also give China an unfair advantage under the WTO. That's because the western world has agreed to treat their respective populations more humanely, including their labor forces and children. And the western world has been addressing pollution issues as well. These differences add significantly to the cost of manufacturing in the west. But, China doesn't incur these costs because they are permitted to pollute and exploit their populace with abandon.
For these atrocities committed against man and nature, Clinton, et. al., awarded them WTO status, and Bush is fine with that. And so are most Amerians.
There have been some great articles on how the Chinese negotiate. They're even tougher than the Soviets were. They figure out what makes each of the U.S. negotiators tick, and then they just play them. They figure out what they need to say and how they need to act to make each negotiator feel like he's getting somewhere, but, in the end, we always come away with nothing. There have been some really excellent pieces written on this subject. You should try to read them . Then, you'll see that our let's-be-friends style of diplomacy is destined to failure.
The only thing we hold over China is their status in the WTO. They need to know that they risk losing membership if they don't play by the rules. Our "horse is out of the barn" argument is absurd. That's just a rationalization for not being willing to fix a problem. It wasn't that long ago that China was not in the WTO. I remember those days, and there's no reason we could no return to them - or threaten to. "The horse is out of the barn" is an excuse to never do anything about anything.
Try to picture this in your mind, You're sitting across the table from the Chinese, negotiating. What is it you want? That is, what leverage do they have over you? Well, you want them to stop conscripting young children to work in factories, and you want them to stop pumping so much filth into the air that it's showing up in the crops grown in California, and you want prices to be determined through the forces of the market (i.e. no pegged rates). So, why the hell should they listen to you? Why don't they tell you to go take a hike? You think it's because we are so likeable? LOL! That's what Clinton thought! And Bush thought he would succeed by acting tough. Well, they both got played - big time. The Chinese showed Clinton rapture, so that Clinton would walk away thinking he was god; and they showed Bush respect, so that Bush would walk away thinking he was tough. But, in reality, they both walked away with nothing. No, the leverage that we have - and the only leverage - is membership in the WTO. That's it. That's what we have that they want. It's pretty simple.
Letting them make up their own rules and including them in the WTO, anyway, is lunacy. What's the point? Why would I enter into an agreement where I agree not to kill you, but you can still kill me? That's the craziest thing I've ever heard. The whole point of the WTO is that it is a set of rules that the signatories agree to. Either you agree or you don't; if you don't, then you can't join, by definition. It takes some pretty warped thinking to say that we will give them all the benefits of the WTO, yet look the other way when they don't play fair. Clinton! (Bush, too.)
As for the exchange rate issue, If the rate is floated, the global forces acting on currencies begin to have an effect immediately. The nature of the game changes literally overnight. That doesn't mean that the rate moves to a final equilibrium overnight, but it begins to move down that road. Yes, there are also intermediate- and longer-term forces at work, but the exchange rate would begin to move immediately.. Virtually all economists would agree that such a change has an immediate effect. This is the history of exchange rates.
Obamas approach, is definitely long term. That's because he falls into the Bill Clinton/George Bush school of thought, which is to appease China for fear of offending them, and hope that maybe, perhaps, things will change at some point in the distant future - if we all act real nice.
As for the efficacy of floating the rates, just look at what the dollar has done against the euro.Also, our goernment seems to be confused between the exchange rate issue and the cost of labor issue. China's cost of labor, as expressed in yuan, is not something that would change immediately. However, the cost of labor in dollars would begin to change rather soon because of the change in exchange rates, if the yuan were allowed to float.
Those are two separate phenomena: the change in exchange rate; and the change in the cost of labor, expressed in yuan.We need to keep them separate.
So, as for our "econ 101" analysis, at best, it's incomplete, and at worst, it's wrong, because the context is the international markets, and not just one domestic market. Labor costs in dollars would, in fact, begin to change relatively quickly, because of the exchange rate. That change would reflect the exchange rate imbalance that has already accrued. Then, going forward, there would be additional pressure on the exchange rate, so long as China continued to rack up massive surpluses and forex. And if the rest of the world found its balls and abandoned our "let's ask Santa Claus" approach to diplomacy, and put real pressure on China to address its labor exploitation, human rights and pollution issues, well that would put some real serious pressure on their labor and manufacturing costs as well.
That's the only solution. In the long run, the world can not afford to have China doing what it is doing. Heck, in the long run the world can ill afford (sustain) the industrializatoin that has already taken place in the west. We are all going to have to make sacrifices.
But some people talk the talk, and they don't walk the walk. Some people say we need to care more about sustainability, but they're fine with China's industrialization plan. Well, that's a contradiction. China's 1.3 billion people, allowed to industrialize to the point they are "equal" to the west, will be ruinous to the planet. All the more reason for us to start making some tough choices of our own, otherwise we would be hypocrites.
That, I think, is the real issue. If we allow China to continue on its path, then we will all be able to look at ourselves and say, "well at least we didn't screw up the planet the way China did." And we will pat ourselves on the back for it, even as we continue on our own unsustainable path. But, that's not the way our children will see it. They will say, "No, if you thought it would be hypocrisy to ask China to internalize its externalities (e.g. pollution), that's no excuse to look the other way. Rather, you should have cleaned your own houses as well, and then, you would have had the moral authority to demand that China do the same. And then, we wouldn't be talking about who was the worst cause of the problem...
Best Regards
Doug
"Diplomacy" with China (our approach) has accomplished nothing so far. They are still violating human rights. They are still not a part of any initiative to address pollution. They were never part of Kyoto. They are double-crossing us in the war on terrorism. They are using WTO to gain foreign markets for their exports, while keeping their rates pegged, and it looks as though that, itself, could be a violation of the WTO treaty. They have exploitive labor practices.. And they abuse child labor.
And all of those problems create not only moral issues, but they also give China an unfair advantage under the WTO. That's because the western world has agreed to treat their respective populations more humanely, including their labor forces and children. And the western world has been addressing pollution issues as well. These differences add significantly to the cost of manufacturing in the west. But, China doesn't incur these costs because they are permitted to pollute and exploit their populace with abandon.
For these atrocities committed against man and nature, Clinton, et. al., awarded them WTO status, and Bush is fine with that. And so are most Amerians.
There have been some great articles on how the Chinese negotiate. They're even tougher than the Soviets were. They figure out what makes each of the U.S. negotiators tick, and then they just play them. They figure out what they need to say and how they need to act to make each negotiator feel like he's getting somewhere, but, in the end, we always come away with nothing. There have been some really excellent pieces written on this subject. You should try to read them . Then, you'll see that our let's-be-friends style of diplomacy is destined to failure.
The only thing we hold over China is their status in the WTO. They need to know that they risk losing membership if they don't play by the rules. Our "horse is out of the barn" argument is absurd. That's just a rationalization for not being willing to fix a problem. It wasn't that long ago that China was not in the WTO. I remember those days, and there's no reason we could no return to them - or threaten to. "The horse is out of the barn" is an excuse to never do anything about anything.
Try to picture this in your mind, You're sitting across the table from the Chinese, negotiating. What is it you want? That is, what leverage do they have over you? Well, you want them to stop conscripting young children to work in factories, and you want them to stop pumping so much filth into the air that it's showing up in the crops grown in California, and you want prices to be determined through the forces of the market (i.e. no pegged rates). So, why the hell should they listen to you? Why don't they tell you to go take a hike? You think it's because we are so likeable? LOL! That's what Clinton thought! And Bush thought he would succeed by acting tough. Well, they both got played - big time. The Chinese showed Clinton rapture, so that Clinton would walk away thinking he was god; and they showed Bush respect, so that Bush would walk away thinking he was tough. But, in reality, they both walked away with nothing. No, the leverage that we have - and the only leverage - is membership in the WTO. That's it. That's what we have that they want. It's pretty simple.
Letting them make up their own rules and including them in the WTO, anyway, is lunacy. What's the point? Why would I enter into an agreement where I agree not to kill you, but you can still kill me? That's the craziest thing I've ever heard. The whole point of the WTO is that it is a set of rules that the signatories agree to. Either you agree or you don't; if you don't, then you can't join, by definition. It takes some pretty warped thinking to say that we will give them all the benefits of the WTO, yet look the other way when they don't play fair. Clinton! (Bush, too.)
As for the exchange rate issue, If the rate is floated, the global forces acting on currencies begin to have an effect immediately. The nature of the game changes literally overnight. That doesn't mean that the rate moves to a final equilibrium overnight, but it begins to move down that road. Yes, there are also intermediate- and longer-term forces at work, but the exchange rate would begin to move immediately.. Virtually all economists would agree that such a change has an immediate effect. This is the history of exchange rates.
Obamas approach, is definitely long term. That's because he falls into the Bill Clinton/George Bush school of thought, which is to appease China for fear of offending them, and hope that maybe, perhaps, things will change at some point in the distant future - if we all act real nice.
As for the efficacy of floating the rates, just look at what the dollar has done against the euro.Also, our goernment seems to be confused between the exchange rate issue and the cost of labor issue. China's cost of labor, as expressed in yuan, is not something that would change immediately. However, the cost of labor in dollars would begin to change rather soon because of the change in exchange rates, if the yuan were allowed to float.
Those are two separate phenomena: the change in exchange rate; and the change in the cost of labor, expressed in yuan.We need to keep them separate.
So, as for our "econ 101" analysis, at best, it's incomplete, and at worst, it's wrong, because the context is the international markets, and not just one domestic market. Labor costs in dollars would, in fact, begin to change relatively quickly, because of the exchange rate. That change would reflect the exchange rate imbalance that has already accrued. Then, going forward, there would be additional pressure on the exchange rate, so long as China continued to rack up massive surpluses and forex. And if the rest of the world found its balls and abandoned our "let's ask Santa Claus" approach to diplomacy, and put real pressure on China to address its labor exploitation, human rights and pollution issues, well that would put some real serious pressure on their labor and manufacturing costs as well.
That's the only solution. In the long run, the world can not afford to have China doing what it is doing. Heck, in the long run the world can ill afford (sustain) the industrializatoin that has already taken place in the west. We are all going to have to make sacrifices.
But some people talk the talk, and they don't walk the walk. Some people say we need to care more about sustainability, but they're fine with China's industrialization plan. Well, that's a contradiction. China's 1.3 billion people, allowed to industrialize to the point they are "equal" to the west, will be ruinous to the planet. All the more reason for us to start making some tough choices of our own, otherwise we would be hypocrites.
That, I think, is the real issue. If we allow China to continue on its path, then we will all be able to look at ourselves and say, "well at least we didn't screw up the planet the way China did." And we will pat ourselves on the back for it, even as we continue on our own unsustainable path. But, that's not the way our children will see it. They will say, "No, if you thought it would be hypocrisy to ask China to internalize its externalities (e.g. pollution), that's no excuse to look the other way. Rather, you should have cleaned your own houses as well, and then, you would have had the moral authority to demand that China do the same. And then, we wouldn't be talking about who was the worst cause of the problem...
Best Regards
Doug
