Currency War - Bullets now being fired

We seriously believe that US policy makers are getting it wrong to assert that China is a currency manipulator as a way to force them let the Yuan float a little bit closer to where they, US Politicians, believe it should be. Belligerence is a  trait that Chairman Mao inculcated in his cadre and the US approach is likely to escalate tensions further. Already the Chinese have retaliated with a ludicrous set of tariffs on US Chicken imports claiming that these are being "dumped" on China.

Now we admit that this could be a cunning plan by Legislators to drive up the cost of Chinese imports into the US and give the United States a little bit of inflation at a time when deflation is clearly a risk but we doubt they'd be so prescient. Rather we think the up-coming mid-terms, thin slicing and downright irrationality is behind this move.
CNN reports:

"If this risks upsetting the People's Republic of China, so be it," said Ohio Democrat Tim Ryan. "Whether you're a Democrat or a Republican, a liberal or a conservative -- millions of good-paying jobs have been lost and hundreds of thousands of families across this country have suffered as a result of China's unlawful trade policies."

Yeah yeah, right. It was the Chinese desire to steal American jobs not the corporations desire for bigger margins that drove them into either Chinese production or Chinese sourcing and as such drove jobs offshore. American consumers simply learnt the lesson that their corporate leaders wanted them to and that was buy more and more of the cheaper goods that China made and Chinese manufacturers simply learnt the lessons that they were taught.

China's currency would probably appreciate if it was freely floating but to what end. This would quickly reprice Chinese exports cause massive job losses and most likely cause serious social unrest. Remember that at Chinese New Year a couple of years ago 20 million Chinese went back to the country side for the celebration and did not return to work. The Chinese Politburo knows that in Chinese history unrest in the lower socio-economic ranks often causes regime change. Something they would have to fight hard. So it's in China's long run best interest to open gradually and let the Yuan appreciate over a longer period.

The US wants the Chinese currency higher, the Japanese want their currency weaker, the British won't want Sterling's run to extent too much further nor the German's the Euro's move. Brazil won't want the real to move too much higher against the USD either. Competitive devaluations and trade wars loom large as a big risk to the global economy.

CNN on the US Law
http://money.cnn.com/2010/09/29/news/economy/congress_china_currency_bill/index.htm?section=money_latest&utm_source=twitterfeed&utm_medium=twitter

FT Alphacville on the "Fowl" Tariffs
http://ftalphaville.ft.com/blog/2010/09/29/355836/irony-alert-china-cries-fowl/