Barack Obama took Hu Jintao to task on Tuesday, scolding the dejected-looking Chinese leader at a press conference held in Beijing. Obama delivered one ferocious jab after another, claiming that China’s dollar-peg has cost the US millions of high-paying manufacturing jobs while creating gigantic trade imbalances which have destabilized the global economy and thrust the world into a severe recession. Obama demanded that the Chinese government convert to market-oriented exchange rates immediately to preserve jobs in America and to end the de facto tariff that China applies to US goods through currency manipulation. Obama’s sharply-worded statement left Hu gasping for air while the assembled members of the western press snapped to their feet in raucous applause.
Okay, so it didn’t really go down like that. The aforementioned "Obama-Jintao smackdown" never really took place; it’s a fairy tale. The actual press conference was predictably bland and uneventful; another tedious exercise in international diplomacy. There were no fireworks or gaffes, nor was there any headway on any of the main issues; climate change, human rights, Iran or currency manipulation. Obama made a few perfunctory remarks about bilateral cooperation and the US’s "strong commitment to a one-China policy", after which he was quickly transported to the Great Wall for a photo-op with the fawning media. The trip was a complete bust, in other words, it went exactly according to plan.
American workers and union bosses were hoping that Obama would plead their case and demand an end to China’s currency policy which pegs the renminbi to the dollar. The policy gives China a leg-up on US exports which ends up costing America jobs. But, apart from a mild rebuke about "market-oriented exchange rates"–which was approved by his Chinese hosts–Obama avoided the topic like the plague. The rock-star president showed no interest in sparring with his new friends to defend the interests of US workers, a growing number of who spend their days perusing the want-ads or standing in unemployment lines.
The New York Times Helene Cooper, who accompanied Obama on his Asia junket, suggests that "China effectively stage-managed President Obama’s public appearances" and that "In a masterstroke, they shifted the public discussion from the global risks posed by Chinese currency policy." Right. While Cooper’s faux-narrative creates a plausible excuse for Obama’s negligence, its mostly nonsense. The reason Obama didn’t make a fuss over the dollar peg is because it doesn’t serve the interests of his constituents. As far as the big-money guys are concerned, the present system works just fine, so why rock-the-boat?
If Obama was serious about saving American jobs, there’s many ways he could remove China’s finger from the scales. Economist Dean Baker explained one way this could be done in an article this week in Counterpunch:
The US doesn’t have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.
Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China’s. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan….
Such a bold move carries a price. Short-term negatives of a lower-valued dollar include higher import prices, which translates to higher inflation and somewhat lower living standards. Politically, it may be difficult for Washington to intentionally overpay for China’s currency at a time of high unemployment, even if the goal is to boost jobs at home." (Dean Baker, "Obama’s Nuclear option on the Yuan", CounterPunch.org)
Baker’s remedy would be a boon to American manufacturing and put China on notice that US policymakers are serious about reducing the massive and destabilizing imbalances. Consider also, that all of the Fed’s extraordinary actions to date have been aimed at generating inflation to weaken the dollar (to increase exports) and speed up the recovery. It’s only logical that Obama would want to strengthen those policies by forcing China to abandon the dollar-peg. But that’s just not the case. The administration shows no interest in pressuring China to reverse the present policy. Why?
Economist Mark Weisbrot solves this mystery in another counterpunch article titled "The US must Solve its own Economic Problems". Weisbrot sums it up like this:
"The interests that dominate economic policy-making in the United States are mainly in the financial sector, as we can see by the hundreds of billions of dollars of no-strings-attached government subsidies they have gotten in this recession; and the $21 billion in executive compensation that will be paid out by Goldman-Sachs, which is particularly well represented in our government. A strong dollar is good for them because it makes anything they want to buy overseas cheaper, and of course it lowers inflation by keeping imports cheaper. The more than five million manufacturing jobs lost over the last decade are just “collateral damage” for them." ("The US must Solve its own Economic Problems" Mark Weisbrot, CounterPunch.org)
Weisbrot is clearly onto to something, but his analysis only tells half of the story. The truth is that Obama is just carrying on the work of George W. Bush and Henry Paulson. He’s trying to pry open Chinese markets to US financial services. That’s the real purpose of the visit. The lavish presidential excursion has nothing to do with human rights, climate change, or dollar/yuan rebalancing. That’s all just public relations mumbo-jumbo.
Congress is in on the fraud, too. They could end China’s yuan hanky-panky in minute by applying trade sanctions. But they choose not to, because Congress is a fully-owned subsidiary of Wall Street. They dare not do anything that will offend their constituents.
Here’s how the system works: China sells the US cheap lead-based widgets, and then recycles the dollars into US Treasurys and dodgy financial products. This provides the gargantuan investment banks with a reliable flow of cheap capital to goose stocks and fatten the bottom line. Of course, the process does have it’s shortcomings, like the fact that it crushes the domestic work-force, but that’s how it was designed to work anyway. What economists call "unsustainable imbalances" are praised at the big brokerage houses as "windfall profits". The total destruction of the US labor movement is just an added perk for these well-heeled, flag-waving, uber-patriots.
And here’s another point of interest curious readers. This is an excerpt from an interview with Morgan Stanley’s Stephen Roach:
Question: How big are China-based multinational corporations now and how do they factor into this issue of global imbalances?
Stephen Roach: "They’re a big deal. Over 60 percent of export growth over the past twelve years has come from growth by Chinese subsidiaries of Western multinationals, but again the problem I have is that too many in the United States, especially the Congress but also Washington, focus on the bilateral trade imbalance between the United States and China. That’s just a fundamental economic mistake that’s being made."
So, a large portion of China’s industrial capacity is actually "China-based multinational corporations". In other words, US workers are actually competing head-to-head with US industries that are using sweatshop labor to enrich themselves while savaging the American middle class. Great. I wonder how many of these "industry leaders" affix the stars-n-stripes to their lapel each morning before they trundle off to work?
This proves that the outsourcing of jobs, the off-shoring of businesses, and the "free trade" laws are mainly the work of cutthroat American corporatists not the "rascally Chinese" as the media would like everyone to believe. China is not destroying America; blue-blooded, brandy-guzzling, Harvard-educated Americans are. It’s just good old fashioned class warfare.
Treasury Secretary Timothy Geithner’s recent article in the Wall Street Journal, "The Road Ahead for Asia’s Economies" explains in detail, the real US-China policy. Here’s an excerpt:
As U.S. households save more and the U.S. reduces its fiscal deficit, others must spur greater growth of private demand in their own economies……We also must keep our sights on maximizing the potential of global markets. Both exports and imports remain critical stimulate the flow of knowledge and innovation that is enabling emerging economies to catch up with developed-world living standards….To achieve durable growth, all of our economies must have flexible labor markets."
In other words, more lowering of trade barriers, more lost jobs at home, more unemployment.
Geithner again: "Among other things, emerging economies must strengthen their social safety nets through sustainable health and retirement-benefit schemes, (editor: Wall Street wants open markets for health care and financial products) thus reducing the need for high precautionary saving that contributes to global imbalances. Regulatory frameworks conducive to competitive markets will support private enterprise, investment and innovation. (ed.: MBS, CDOs, CDS and other debt-backed exotica) In the emerging economies, deeper and more efficient financial markets will enable better intermediation of savings and enhance investment productivity.(ed: "Please, allow G-Sax and JPM to open-shop in Tienanmen Square)
Reforms are also necessary to promote cross-border private investments, while ensuring an institutional capacity and prudent regulatory framework to enable markets to absorb capital flows … finance ministers of our respective countries, we are keenly aware that our future prosperity will be founded on a continued commitment to globalization." (Timothy Geithner, Wall Street Journal, "The Road Ahead for Asia’s Economies")
Summary: Geithner and Co. see the US economy languishing in a low-grade Depression for the foreseeable future. Thus, Wall Street is planning a major shift in its base-of-operations to Asia. This is the real reason behind Obama’s trip to China. There’s no truth to the rumor that US policymakers give a hoot about "currency manipulation" or the ongoing trouncing of the American worker. China’s "dollar-peg" essentially serves the interests of the giant multinational corporations and Wall Street speculators who own the media, the courts, the congress, the White House and most of the country.
MIKE WHITNEY lives in Washington state. He can be reached at: firstname.lastname@example.org