by Andy Roth, VP of Government Affairs
After news broke this week that China was devaluing its currency, Sherrod Brown (D-OH), leader of the Senate China-Bashing Caucus*, wasted no time in…well, bashing China:
“China will stop at nothing to give its exports an unfair advantage in the global marketplace and this devaluation by the Chinese government is concerning.”
Senator Chuck Grassley (R-IA) also chimed in:
“China has manipulated its currency for a long time. This is just the latest example, and it’s past the time to do something about it.”
Manipulation. Unfairness. They’re highly-charged political buzzwords; but let’s step back a bit and examine what’s truly going on.
China’s economy has stalled and its government has decided that expanding its monetary supply will help reinvigorate it. Some people call this “manipulation.” Other people might call it “quantitative easing.” That’s right. The United States manipulates its currency too. All sovereign governments do. I would argue that expanding the money supply is not exactly a wise move, but Schumer and Grassley are engaging in some massive pot-calling-the-kettle-black name-calling.
So let’s drop that “manipulation” buzzword.
By devaluing their currency, China’s exports are now at a competitive advantage to American products. That’s true, but is it unfair? Chinese products will compete more easily with some products made by some American companies, potentially harming those companies. But what about the American companies that use Chinese raw materials or equipment in making their final products? They would benefit from cheaper imports. What about American consumers who would benefit from paying less for the Chinese product? They could use the savings for more spending that boosts the U.S. economy.
So, if China’s currency devaluation is unfair, why are politicians like Grassley and Schumer siding with some American companies at the expense of other American companies and American consumers? Probably because they’re politicians, who like to pick winners and losers for political purposes.
So let’s drop that “unfair” buzzword, too.
One more thing to think about: what is a Chinese product and what is an American product? Global supply chains make it impossible to define that nowadays. Everyone would agree that the iPhone is an American product, but it’s assembled in China and shipped to the U.S., thus iPhones could become cheaper because of China’s latest monetary decision. The Toyota Camry is considered a Japanese car, but a lot of Camrys are produced in the United States, and built with a ton of American parts. In fact, a Camry has so many American parts, it’s consider the Most American car in the market. Brain. Explosion!
So when Schumer, or Grassley, or even The Donald decide to bash China and recommend higher taxes (that’s their solution), you’ll know they are just being politicians who aren’t mindful of the facts.
* There is no China-Bashing Caucus, but if there was, Brown would be its leader!