China Slashes Costs for American Consumers

My headline is probably the most accurate description of how China's devaluation of the yuan yesterday affects this country.  But I bet you will not see it portrayed that way in any other media.  What you are going to see, particularly as the Presidential election races heat up, are multiple calls to bash China in some way to punish it for being so generous to American consumers.  Why?  Because the devaluation of the yuan will negatively affect the bottom line of a few export sensitive companies.  And if we have learned anything from the Ex-Im battle, things that GE and Boeing like or hate are much more likely to affect policy than things that benefit 300 million consumers.  Make no mistake, protectionist measures are the worst sort of cronyism, benefiting a few companies and workers and hurting everyone else (look up concentrated benefits, dispersed costs).

By the way, aren't the worldwide competitive devaluation sweepstakes amazing?  If everyone is doing it, then devaluations have no substantive effect on trade (except to perhaps decrease its magnitude in total), which just adds to the utter pointlessness of the game.  And it is hilarious to me to see US elected officials criticizing China for "manipulating" its currency, as if the US Fed hasn't added several trillion dollars to its balance sheet over the last few years in a heroic attempt to manipulate the value (downwards) of our own currency.

  • Mike Powers

    You're talking as though this is a bunch of Chinese businesses cutting prices because they think it's economically beneficial to them.

    What's *actually* happening is the same thing the Saudis tried to do with shale gas--a government decree that Prices Shall Be Lowered (combined with some massive subsidies to keep everyone from having to shut down). The idea being to undercut American startups for long enough that they go out of business, and keep the money rolling in to China.

    "protectionist measures are the worst sort of cronyism"

    You are not a stupid man. Stop doing and saying stupid things. Acting like a yuan devaluation is *not* the result of Chinese government intervention is a stupid thing.

  • vikingvista

    What is stupid, is the belief that using police powers to punish American consumers at the behest of a few corporate cronies is good for anyone but the cronies and the politicians they bankroll.

    What is stupid, is criticizing what the Chinese government does to its people while ignoring that the American government is doing the same thing to Americans.

    What is stupid, is thinking monetary devaluation usually results in either economic growth or a net transfer of wealth into the devaluing country from other countries.

    What is stupid, is thinking real clearing prices are something that can be long dictated.

    Anyone who truly cares about American jobs and American prosperity in the broadest sense, would employ nothing stronger than nonthreatening rhetoric in response to the Chinese government's expansion of their monetary base. They certainly wouldn't demand that the US government counter Chinese self-abusing crony policies with their own self-abusing crony policies.

  • Aaron M

    You're seriously contending that China's devaluation is intended to... strangle American export startups that somehow compete with China's steel, concrete, and rubber dog shit exports? That's absurd. The Chinese stock market has crashed twice in the last couple of weeks. For an export-driven economy, a low currency is extremely important and devaluing it will, they hope, resume demand for Chinese goods and stave off worse dangers. To assume that this is some sort of evil weapon directed against "American startups" is bizarrely egocentric, conspiratorial, and totally ignorant of ACTUAL economic competitors to China, like Malaysia, Singapore, Vietnam, Bangladesh, and so on.

    I note that you lined up the criticism of protectionism for special attention, but then didn't actually critique it. You just implied it was stupid and wandered away. Perhaps you don't really understand what it is? Protectionism is policy that explicitly raises the cost of a given foreign good specifically so domestic producers can charge higher prices, safe from competition abroad. It *deliberately* screws consumers with higher costs across the board for the specific benefit of those producers: concentrated benefits, dispersed costs, exactly as described.

  • DFCtomm

    If a nation has no industry of it's own then how does it generate jobs by which to buy foreign goods at any price?

  • gene washington

    This is great as long as you have a job. Add in the fact that Obama is killing cheap energy will add to the lack of jobs in the USA. 50 million on food stamps and 100 ill ion not in the work force. Sounds great to those who have government jobs. The party ever stops in DC.

  • randian

    Relative advantage.

  • DFCtomm

    Cheap labor is not a specialty. It's simply arbitrage.

  • Rich K

    Considering that the Fed has made Bank deposits the worst possible place to keep your investment money is in itself Criminal. If the Chinese want to make the crap they sell a better deal for us in the west I say, Bring it on. You guys here cab carp all you want about the blah blah dynamics of trade imbalances etc etc, but the cash in my pocket only goes so far. I'll take the short term discount for all it's worth, you guys can fight over semantics.

  • P_Ang

    Yep...I've been looking for work for 9 months after losing my tech job to severely under-skilled techs in India...not only does the company pay them less than half, they don't have to pay for ACA either. Of course, they can't do the job and customers hate it, but the company doesn't care. I've got about a month and a half left in savings, then I'm out on the street.

  • dougq

    A few companies? Like my family farm that produces less than $150K a year and profits much less, yet will be hit hard by not being able to export there?

  • dougq

    I think your conspiracy theory is aimed at the wrong target. What you have here is a US 18 trillion dollar debt that is up against the legal debt limit and has not budged one penny in months because it's on 'pause' so that Americans don't realize that the government has gone over it. They only have a couple months left that they can 'pause' it and during that time they need to find a way to knock that value down. Well, up steps Hillary's buddies reducing the value of the Yuan dramatically so we can more easily wipe off the debt to China. You watch, in two months China's holdings of our debt will be all the way down to $600 billion, more than cut in half for the year.

  • Mike Powers

    Not American exports, hoss; American domestic production. The Chinese government is well aware that if their costs rise, Americans will onshore everything and China'll be left with nothing but a bunch of big empty factories and a pile of US savings bonds that inflation has sucked all the value out of.

    "Protectionism is policy that explicitly raises the cost of a given foreign good specifically so domestic producers can charge higher prices"

    Yes, and sometimes those higher prices are what allow the domestic producers to exist. Saying "all protectionism is cronyism" is stupid, because it ignores the realities of a global economy. It is