All the T-bills in China

This based on a piece from Edmund L. Andrews of the NEW YORK TIMES:

"WASHINGTON, May 17 - The Bush administration warned China on Tuesday that its currency policies were distorting world trade, and it brandished the threat of retaliation against the country's exports if Chinese leaders did not change course in the next year," Andrews writes.

The policy the Bushies object to is China's fixed exchange rate between the yuan and the dollar, a practice China established in 1994 when the U.S. dollar was strong. Nobody had any heartburn over it until recently.

"China's 10-year-long pegged currency may have contributed to stability in the past," says Treasury Secretary John W. Snow, "but that is no longer the case today as China has grown to be a more significant participant in global trade and financial flows."

The problem is that as the yuan devalues with the dollar, Chinese goods become more and more affordable in the United States and the rest of the world--something the Bush administration might have considered when it raised the ceiling on the national debt and caused the dollar to tank.

The administration is threatening to impose trade sanctions on China if it doesn't change its monetary policy, but one has to wonder how America would fare in a war of economics against China.

America's trade deficit with China hit $124.9 billion in 2004, and China now holds more than $600 billion in U.S. Treasury securities, making it our biggest creditor. The U.S. national debt is approaching $7.8 trillion, which represents over 70% of our gross domestic product. We pay roughly $380 billion annually in debt interest alone. (We don't actually pay the interest. Under the Bush mill, we just go that much further into debt every year.)

In a May 17 Reuters article, Richard Duncan, author of THE DOLLAR CRISIS, states that tariffs imposed on China won't reduce the trade deficit because other low-wage countries will simply under cut the Chinese.

Duncan also warns that protectionism on America's part could cause a global recession.*

But that won't stop the administration from pushing for tariffs if that's what their buddies in the big U.S. corporations want. And if there's a global recession, so what? Fortress Bush will just blame it on the Chinese, the French, the Germans, the Clintons, the mainstream media, and whatever other scapegoats happen to be handy at the time.

*Geert De Clercq, "U.S. trade gap threatens global crisis," REUTERS, May 17, 2005 (May 18, 2005).