On 2012-01-30, at 8:40 PM, Doug Henwood wrote:
>
> On Jan 30, 2012, at 4:14 PM, brad quoted Dean Baker:
>
>> […]
>
>> If the dollar is 20 percent above its proper value then it is
>> equivalent to putting a 20 percent tariff on all of our exports.
>
> This is a little devious. Is Dean arguing that the dollar is 20% overvalued? Against what, if so? The euro? The eurozone is a mess. The yen? The renminbi? It's actually appreciated about 15% over the dollar since 2008. Chinese wages have been rising, but they're still less than 10% of U.S. wages - the currency could double and there'd still be a huge gap.
>
> Or did he just throw this number out for illustrative purposes? If he did, it could leave the impression on the casual reader that it is 20%.
>
>> Balanced trade would have a huge impact on U.S. labor markets. It
>> would lead to more than 5 million new jobs in manufacturing.
>
> Huh? Is this one of those static calculations, beloved of EPI, that just divides the trade deficit by the average manufacturing wage? Meaning that there are no gains at all to trade? That money saved on cheap manufactured imports isn't spent on other things, like services? That there's no cost to a cheaper dollar, like higher oil prices?
>
>> In short, if we actually want to see results in the form of more
>> manufacturing jobs, rather than just a good speech, we will have to
>> press President Obama to challenge the 1 percent. A more competitive
>> dollar must be at center of a serious manufacturing policy. Everything
>> else on President Obama’s Built to Last agenda is just window
>> dressing.
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On the US demand for a more rapid appreciation of the yuan and the supposed windfall benefit which would accrue to US manufacturing:
The trade gap between America and China is much exaggerated The Economist Jan 21st 2012
http://www.economist.com/node/21543174
AMERICA’S trade deficit with China hit another record last year. Estimated at almost $300 billion, it made up over 40% of America’s total deficit. Yet official data grossly overstate US imports from China.
Take the iPad, which America imports from China even though it is entirely designed and owned by Apple, an American company. iPads are assembled in Chinese factories owned by Foxconn, a Taiwanese firm, largely from parts produced outside China. According to a study by the Personal Computing Industry Centre, each iPad sold in America adds $275, the total production cost, to America’s trade deficit with China, yet the value of the actual work performed in China accounts for only $10. Using these numbers, The Economist estimates that iPads accounted for around $4 billion of America’s reported trade deficit with China in 2011; but if China’s exports were measured on a value-added basis, the deficit was only $150m.
The chart shows a geographical breakdown of the retail price of an iPad. The main rewards go to American shareholders and workers. Apple’s profit amounts to about 30% of the sales price. Product design, software development and marketing are based in America. Add in the profits and wages of American suppliers, and distribution and retail costs, and America retains about half the total value of an iPad sold there. The next biggest gainers are South Korean firms like Samsung and LG, which provide the display and memory chips, whose profits account for 7% of an iPad’s value. The main financial benefit to China is wages paid to workers for assembling the product and for manufacturing some inputs—equivalent to only 2% of the retail price.
China’s small contribution to total costs suggests that a yuan appreciation would have little impact on its exports. A 20% rise in the yuan would add less than 1% to the import price of an iPad. For imports such as clothing and toys the Chinese value added is much higher. But electrical machinery and equipment, with more complex cross-border supply chains, make up one-quarter of China’s exports to America. Pascal Lamy, the head of the World Trade Organisation, has suggested that if trade statistics reflected true domestic content, America’s deficit with China might be more than halved.
IMF Reviews China Currency's Value By IAN TALLEY Wall Street Journal January 30th 2012
http://online.wsj.com/article/SB10001424052970203920204577191043301659380.html?mod=rss_about_china
WASHINGTON—The International Monetary Fund is reviewing whether China's currency should still be considered "substantially undervalued," in light of its rapid rise in the past year.
The review could take months, but if the IMF decides China's yuan is just "undervalued," that milder label could undercut U.S. efforts to challenge Beijing's currency policy in an election year.
[…]
U.S. leaders have long complained that an undervalued yuan gives China an unfair trade advantage by making its exports cheaper on world markets.
Just last Friday, U.S. Treasury Secretary Timothy Geithner argued that though the yuan has appreciated, it remains undervalued and is "still below almost all measures of fundamentals." Mr. Geithner's remarks, delivered at a public forum in Davos, Switzerland, during the World Economic Forum, fit the Obama administration's broader effort to get tougher with China on a variety of trade issues this election year, at a time when U.S. economic growth remains tepid and unemployment high.
Li Daokui, an adviser to the People's Bank of China, said Friday the yuan's exchange rate is approaching an equilibrium level, according to Xinhua, the state-run news agency. "During the last few months of 2011, many Chinese private investors started to spend the Chinese currency buying U.S. dollars, which is an indication that the currency is near an equilibrium level," Mr. Li told Xinhua in Davos.
U.S. lawmakers are pushing legislation that would penalize China if the U.S. Treasury found its currency "misaligned." The U.S., as the IMF's largest shareholder and most powerful board member, will help guide how the IMF assesses currencies.
[…]
Since 2007, the yuan's effective value, adjusted for inflation, has climbed by around 25%, according to the Bank for International Settlements…
Eswar Prasad, a Cornell University economist and a former senior IMF China expert, said it is increasingly difficult for the IMF to make a strong case that the yuan is undervalued. "All of the relevant indicators, the current account and trade surpluses, the pace of reserve accumulation and the exchange rate itself, have moved in the direction of suggesting the yuan is no longer much undervalued," Mr. Prasad said.