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Bush & the American economy « Previous | |Next »
September 6, 2003

I came across this speech by President (CEO) George Bush on the US economy courtesy of the wonderfully sharpwitted Billmon over at Whiskey Bar.

President Bush says:

"America's economy today is showing signs of promise. We're emerging from a period of national challenge and economic uncertainty. The hard work of our people and the good policies of our government are paying off. Our economy is starting to grow again. Americans are feeling more confident. I am determined to work with the United States Congress to turn these hopeful signs into lasting growth and greater prosperity and more jobs. "

I guess Bush is on the campaign trail for re-election. Those racing in the presidential and congressional elections next year are beginning to warm up. So I guess you ignore that the US economic machine is idling, has been for some time, and is only now beginning to splutter into growth. The splutterings is what matters------as well as those tax cuts that gave everybody so much confidence.

However, I could not help noticing a report in yesterday's Australian Financial Review (subscription required; 05 09 03; p. 24) that the June was the 35 straight month of declining jobs in the manufacturing sector. This was the worst record since World War 11. Around 2.7 million jobs in the manufacturing industry have been lost. Today's AFR carries a free report on the lack of jobs being created by the splutterings of the US economic machine bursting into action.

So how does the US propose to deal with declining jobs in the manufacturing industry? Blame cheap Chinese imports of course. It's the Chinese who are the problem. The problems with the US trade deficit are due to the Chinese. It's a rerun of the Japanese scenario from the 1980s.

The solution? Some manufacturers are suggesting that the Chinese need to drop their fixed exchange rate and float their currency because the current Chinese policies generate large trade surpluses in dealing with the US. In other words, the yuan needs to appreciate and this would make Chinese imports become more expensive in the US. Consequently, the imperial US state should 'compel' the Chinese to change its exchange rate policy and freely float the yuan. By compel the advocates mean impose penalties in the form of trade sanctions on China.

Paul Krugman is in fine form on this one.

I reckon that "compelling" China to do X to proect US manufacturing would have serious boomerang effects on US interests. Does not the Chinese state use the trade surpluses to finance the US current account deficit by buying $US41 billion worth of US Treasury notes? Does not the Bush administration want China's help to manage the nuclear crisis issue on the Korean peninsula?

On the other side of the equation, as EASTWESTNORTHSOUTH Blog points out a consequence of the Chinese government running a large export surplus is the buildup of inflationary pressures inside China. The technique the Chinese state has deployed to release the pent up monetary pressures is to allow Chinese citizens in several large cities in Guangdong as well as Beijing and Shanghai to visit Hong Kong as individuals and spend up bigtime on the variety of better products in Hong Kong that are available at cheaper prices.

| Posted by Gary Sauer-Thompson at 1:10 PM | | Comments (1)


Well, I think it was Billmon (or possibly someone else?) who also pointed out the fundamental fact about the Chinese situation is the wage level. China has a population of 1.1 billion and therefore a large labor force which is willing to work for US$0.50 per hour. You can twist their arms and make them up the exchange rate by 10% --- that means US$0.55 per hour. Or you can even make them up the exchange rate by 100%, which still means US$1 per hour. How is that ever going to be competitive in the US against McWages of US$7 per hour (and manufacturing jobs rate higher than McWage). How is any free-market profit-chasing shareholder-responsible non-suicidal capitalist manufacturer ever going to rationalise bringing those jobs back to the USA?