It was recently announced that the Congress passed a bill that will penalize China by imposing, tariff; taxes on their products. They’re being impulsive. The US is in no position to make such a demand considering the fact our manufacturing base is short-handed.
The Chinese government keeps the value of its currency, the Yuan low to boost its export-led economy. That’s why the U.S. has a trade deficit with China, importing more than exporting.
Congress fails to understand that China loans us money on a regular basis allowing the US to continue their out of control deficit spending. Congress should appreciate the fact that the US pays for its trade deficit with paper dollars due to its role as reserve currency of the world, because major commodities are bought in dollar, thus creating a constant demand. In the world of trade you trade imports with exports not pieces of paper.
Also, by keeping the Yuan low, Americans get to consume their goods at a cheap price.
That’s why merchandise stores such as Wal-Mart, K-Mart and Target are abundant with cheap Chinese goods.
America needs to rebuild its manufacturing base which was the reason behind its supremacy around the world and why the US dollar became world Reserve Currency under the Bretton Woods agreement in 1944. However, America’s current manufacturing base is in a sad shape.
America’s television manufacturing base is gone. The two television manufacturing companies have collapsed. RCA has gone bankrupt while Zenith was bought by another Korean one: LG Electronics according to National Inflation Association.
Also, the clothing base has vanished. New York which produced 70 percent of America’s clothing for women and 40 percent for men now imports 40% from China according to National Inflation Association.
Yuan revaluation will lead to massive dollar devaluation and trade wars. Everything will cost a lot more and we could have shortage in basic clothing, electronics as they stop sending us their goods in retaliaton.
US should make no demands to foreign countries like China when they don’t have any leverage in the negotiations. Congress should wait until the time is right.