Saturday, September 25, 2010

Playing games with yuan

Please read this post in conjunction with my basic position paper "What is this blog all about?".

On September 25, 2010, there was discussion in the news of possible actions within the U.S. government to put further pressure on China to allow the yuan to move up. 

The news report stated that some members of the Senate and of the House are in favor of applying tariffs to some goods coming from China.  According to the September 27, 2010, issue of the financial newsletter published by Michael Shedlock, a think tank has said that if the yuan moves up (no numerical value of a possible increase was given), "that would add 500,000 manufacturing  jobs in the United States".

It is certainly gratifying to hear that a connection is being made between China and manufacturing employment in the United States.  But specific action in the House and Senate is slow in coming.  Hundreds of major U.S. corporations are doing all their manufacturing in China.  These corporations are probably happy with the way things are now.  Is it possible that these corporations are putting pressure on the President and on House and Senate members to leave things alone, don't rock the boat, don't put great pressure on China to allow the yuan to rise?

There was mention in the news report that in China manufacturing firms are lightly taxed.  This is another unfair aspect of the U.S.-China economic relationship.  The suggestion is put forward that corporate tax in the United States should be reduced.

But obviously the tax on corporations should be reduced only for those corporations that are manufacturing in the United States.  This key point was not mentioned.  A corporation doing half its manufacturing in the U.S. would get half the tax cut.

Mr. Shedlock in the same issue of his newsletter states that Wal-Mart is one of the companies "lobbying against" action against Chinese imports.

I comment that this position taken by Wal-Mart is insane.  Wal-Mart is not a manufacturer.  Wal-Mart would not be affected by an increase in the cost of imported goods.  All stores competing with Wal-Mart would face these same increases.  What Wal-Mart should really be concerned about is high unemployment in the United States.  People who are unemployed are not good prospects to buy in Wal-Mart stores, regardless of price.  People who live in China do not shop in Wal-Mart stores located in the United States.  Wal-Mart should welcome any action that puts Americans to work, so they have money to spend in Wal-Mart stores.

If Wal-Mart wants to get ahead of the pack, instead of taking negative action as in trying to influence Congress, it should take positive action and and encourage domestic manufacturers to offer goods.  Wal-Mart would advertise its action, taken to encourage domestic manufacturing and increased employment in America.  American-made goods would be clearly so marked.  Each item would be placed in the store next to its Chinese counterpart, so that customers would have a choice.

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