The Coming Trade War

We write today’s edition with the ghosts of Smoot and Hawley lurking over our shoulder. And Winston Churchill whispering “jaw-jaw” is better than “war-war.”

Jawing is what United States and China have been doing for the last 24 hours. Very indirect, beating-around-the-bush jawing, but jawing nonetheless.

Yesterday, President Obama told Senate Democrats he hoped to pressure China to abide by trade agreements, without specifying what agreements China was breaking or how. And then he implied the U.S.-China trade balance is out of whack because the yuan is overvalued relative to the dollar, without mentioning China by name.

“One of the challenges that we’ve got to address internationally is currency rates,” said the president, “and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price.”

Today, China hit back, with equally glancing blows. A spokesman for the foreign ministry said the value of the yuan is not the main reason for China’s trade surplus with the U.S., without specifying what that main reason is. He’d only say, “At the moment… the level of the yuan is close to reasonable and balanced.”

Ordinarily, we’d blow this off. A year ago, not-yet Treasury Secretary Tim Geithner dropped the incendiary term “currency manipulation” during his Senate confirmation hearings. He then backed off. And Chinese students laughed at him. You remember all that.

Back then, the Obamanians were high. They were going to rescue millions of homeowners from foreclosure. Thought they’d already whipped unemployment. And had a supermajority to cram health insurance reform through.

What a difference a year makes. Now the electorate is looking surly. Nothing like picking a fight with your largest creditor to get voters riled up again. Couple this latest exchange with the tension-building factors we cited on Tuesday — especially the sale of U.S. military equipment to Taiwan — and we appear to sit at a more delicate juncture than we did a year ago.

What a mess. But, oh, so much fun, too!

About Addison Wiggin 88 Articles

Affiliation: Agora Financial

Addison Wiggin is the editorial director of The Daily Reckoning, and executive publisher of Agora Financial, a multi-million dollar financial research firm and publishing group based in Baltimore, Maryland. His second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated.

He is also the executive producer of and a writer of I.O.U.S.A. a feature length documentary film nominated for the Grand Jury prize at the 2008 Sundance Film Festival. The film is inspired by the international bestsellers Financial Reckoning Day and Empire of Debt, which he coauthored with Bill Bonner.

Visit: The Daily Reckoning

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