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The War of Words between China and the U.S.
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Monday, October 29, 2007 - Vol. 9, No. 256
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Shifting Trends Lead to China-Bashing
and Rising Global Trade Tensions
Today's comment is by Eric Roseman, Investment Director and editor of Commodity Trend Alert.
Dear A-Letter Reader,
The winds of change are blowing across the Pacific.
In a dramatic shift of trade flows this decade, Pacific economies now export more to Europe and other markets across Asia than to America.
This dynamic trend is not a recent phenomenon. Intercontinental trade between the U.S. and Asia has been slipping since 1990. U.S. trade has suffered at the expense of booming interregional trade in Asia.
For the first time in history, the U.S. was not Asia's largest export partner last month. Instead, the European Union overtook the United States as Asia's primary destination for exports. And China and other regional markets logged record trade surpluses with the European Union (EU).
Congressional Bashing: Japan in the 1980s,
China in the 2000s
In the 1980s and 1990s, Congress targeted Japan with their rising protectionist sentiment as imports flooded the United States. For years, Japan continued to record massive trade surpluses with America while Japanese imports declined.
Today, the winds of protectionist sentiment have changed. But unlike 20 years ago when Japan was the hot target, the United States is now directing their protectionist sentiment toward China. The U.S. government vehemently accuses China of unfair trade practices to maintain a cheap and undervalued yuan currency.
Last week, Japan confirmed this rising trend. Japan authorities announced that despite a record trade surplus in September, Japan's exports to the United States tumbled. This underscores the growing importance of regional trade and rising exports to Europe.
In 1990, Japan was the United States' dominant trading partner in the Pacific. Asia accounted for 38% of all American imports. Since 1990, Japan's trade with the United States has risen 1,200%. But the Asian share of American imports slipped to 36%.
Japan's trade surplus with the United States shrank by a hefty 13% last month. U.S. exports fell 9.2% - the first decline in five months. But Japan's exports to the rest of Asia surged 59% while Europe's exports climbed 26%.
Indeed, as the Pacific continues to accumulate wealth this decade, the region is relying less on the United States for its exports. This is a marked shift based on historical trends in the post-WWII period.
China Rules with Cheap and Abundant Labor
From 1990 to 2005, a manufacturing revolution swept through Asia. China led the revolution as China transformed into an export powerhouse, mainly to the world's developed economies. Since 2005, China has been U.S.'s major trading partner.
Asian wages are only a fraction compared to those in the expensive developed economies. China and other Asian exporters increasingly commanded a greater share of the world's business.
The United States, Germany and Italy, for example, still manufacture excellent high-end goods, namely machinery. But China can produce virtually every low-end item for just pennies on the dollar.
Trade Envy and the War of Words
Like the 1980s, the threat of trade sanctions continues to simmer. The United States and the European Union continue to increase pressure on China to revalue the yuan and make her currency fully convertible. The U.S. dollar has been in a virtual freefall since 2002. Meanwhile China's currency - still semi-pegged to the dollar since 2005 - has benefited enormously from their cheap currency.
The problem is this war of words to pressure China to revalue her currency is a vain and flawed effort. In reality, a sharply revalued Chinese yuan won't cure chronic and irreversible trade imbalances.
Global multinationals (MNCs) continue to build major manufacturing presences in China because unit production costs are simply much cheaper compared to factories in the West. This secular event will last for decades to come until China and other regional manufacturing centers eventually lose their export competitiveness.
Currency Revaluations not the Cure
Instead of targeting and relentlessly blaming China, the United States and the EU should focus the blame on multinationals earning gargantuan profits in Mainland China.
Governments have distorted the facts. Revaluing currencies is not the cure. Rather, the problem lies with major American, European and Japanese MNCs. These powerhouses have established major manufacturing operations in China. And they've also created the distortion in trade imbalances.
But can you really blame them? Companies exist for one reason: profits. Any CEO worth his salt will continue to manufacture their goods where labor costs are competitive. That means China.
Until China becomes a mature and expensive manufacturing hub later this century - similar to the United States and Germany, capital will continue to flow into Asian countries - where big companies can find a high return on equity and low input costs.
Trade should remain free. Currencies should float. And big business should seek the highest return on equity regardless of trade imbalances.
ERIC ROSEMAN, Investment Director
EDITOR'S NOTE: A country's currency can make or break their economic policies with the rest of the world. That's one reason why the dollar continues to sink lower and lower - almost daily. But as one currency falls, another always rises - particularly select Asian currencies like the Japanese yen. Right now, Jack Crooks is watching all these global trade themes closely, so he can recommend the most useful currency options to capitalize on these Asian currencies, in his World Currency Options service. These currency options are acting as a hedge against the falling dollar. If you carry dollars in your wallet, then you need to read about these options right now.
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| Currencies |
Throw another US$100 Million Log on the Fire!
As the Hong Kong dollar rose last week, the Hong Kong Monetary Authority (HKMA) sold its currency for the second time. The central bank in Hong Kong sold off Hong Kong dollars to defend a 24-year-old fixed exchange rate, as a record stock rally increased pressure for currency appreciation.
The HKMA sold HK$775 million (US$100 million) last week after the Hong Kong dollar touched HK$7.75 per dollar. That's the highest the HKMA will allow Hong Kong dollar to rise before intervening. The HKMA sold the same amount on Oct. 23, which marks the first time the bank intervened in the currency market in more than two years.
Hong Kong is supporting its U.S. dollar pegged band once again. They are committed to it.
While it will take some time for this ship to turn, as long as they defend the bottom of USD/HKD exchange rate, then it's almost a guaranteed winner. While this may not be the fastest mover, for someone who wants a low risk, rising currency over time (and to get away from the falling dollar) this could be it.
SEAN HYMAN, Currency Director
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Privacy & Rights
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A Package Deal: Wholesale Service
and Lose Your Privacy All in One
Phone and cable companies often offer "all-in-one" packages for telephone, television and Internet services. Usually, companies offer these packages at a significant discount to their regular prices.
But if you read the privacy policies from the companies offering these packages, you may find some interesting clauses.
For instance, companies may have the right to track what you watch on T.V. or who you call. They can monitor which websites you visit and what you buy online. Some companies even reserve the right to read your email.
According the "privacy" policies, the company owns this information. And they can use it for any purpose they mention in the service contract.
For instance, Time Warner Cable says it may track "Internet addresses you contact and the duration of your visits to such addresses."
Time Warner says it "does not use or disclose any personally identifiable information that may be derived from these logs for marketing, advertising or similar purposes." But, its "Affiliated Internet Service Providers" may monitor "information you publish on the ISP Service." I take this to mean "we have permission to read your email."
Time Warner also may retain "personally identifiable information" about your account for up to 15 years after you end your business relationship with the company.
AT&T Yahoo! and Video Services go the farthest of all. This company stipulates: "While your Account Information may be personal to you, these records constitute business records that are owned by AT&T."
In other words, if you use AT&T's Internet or video services, the company owns your private data.
When you sign up for service, you're stuck with whatever that company's data collection and distribution policies. However, some companies, like DirecTV, allow you to block some types of information sharing. I highly recommend you do so.
A better, but more expensive option, is to choose different companies to provide each telecom service you need.
For instance, you could use one company for local telephone service, but choose another for cellular or long-distance services. Purchase these separately. Also, for added privacy, choose pre-paid cellular and pre-paid long-distance services.
Otherwise, your loss of privacy may be a package deal as well.
MARK NESTMANN, Privacy Expert & President,
The Nestmann Group
www.nestmann.com
P.S. Click here for some more practical ideas on how to keep your phone and Internet records private.
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