Beginning Of Trade War???

Last Thursday Obama met with Chinese Prime Minister Wen Jiabao to lecture him in a two hour meeting at the UN and demand that the Renminbi be allowed to float higher against the USD. Economist Antel Fekete says Obama warned that Democrats in the House were likely “…to pass legislation before the midterm elections that would put huge punitive tariffs on Chinese goods, thus plunging the world into trade war.”

Fekete says

It is most undiplomatic, not to say arrogant, for a head of government to engage another in a in a tête-à-tête confrontation, to discuss technical currency problems that should first properly be sorted out at a lower level by experts.

It appears that China has not given into the demand by raising tariffs on U.S. chicken imports by 50.3% to over 100%.

China was the largest importer of U.S. chicken in 2009 at $752.5 million but has been embroiled for months over duties imposed on U.S. chicken producers. The Chinese government said the new duties will replace ones imposed in February after preliminary results of the probe showed U.S. chicken was being sold at low prices — a process called “dumping.”

Fekete writes that history repeats. Japan was in the same position in 1980 as China is in today vs a vs the U.S.

Japan had a huge pile of U.S. Treasury paper as a result of several decades of trade surpluses — fruits of Japanese thrift and good husbandry. As the yen was floating upwards, Japan took enormous losses on its holdings of U.S. paper, since its gold value was no longer guaranteed after Nixon’s default of 1971. For an American eye these losses were invisible, because Americans blithely assumed that everybody would carry his books in dollar units. But the Japanese carry them in yen units. As the yen was floating upwards from a little over 25 cents to over $1 per 100 yen, the Japanese were forced to take a loss on their savings to the tune of over 75 cents on every dollar of American debt held.

We want the Chinese to do the same thing as the Japanese and take the losses. The Chinese seem to have learned the lesson and now we are verging on Trade War. Too bad our country is run by children!

Tags: aObama Chinese Prime Minister Wen Jiabao Antel Fekete Trade War Renminbi

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