The China Syndrome

China's central planners are simply taking advantage of America's ridiculous trade policies and our naive view of global economics. They have dictated by government decree what the exchange rate will be between their currency (RMB or yuan) and the US dollar. China has vastly undervalued their currency so they can sell to us, and we can not sell to them. China is a communist, oppressive, totalitarian government that strictly controls who, where, why, when, and the amount of all currency exchanges. 

For comparison, the euro and the US dollar has their value set by the international markets. Both currencies are freely traded. If the euro gets high, then traders sell the euro and buy the dollar which has the effect of lowering the value of the euro. The US sells goods to Europe, and Europe sells goods to the US.  Both benefit from the trade, and consumers on both sides of the ocean get a better variety of goods.

What would happen if the euro was suddenly lowered to half value by government decree?  Lets say, for example, the euro and dollar were equal in value ($1 = 1), and all was fine.  Lets also say that Europe was totalitarian, and the central planners lowered the value of their currency so $1 = 2.  All of a sudden a $1 widget made in the US and exported to Europe now costs 2, which is too expensive since the locally made widget only costs 1.  All of a sudden, a  1 widget made in Europe costs only $0.50 when purchased in the US, which is now a terrific value and is snapped up by American consumers since the locally made widgets costs $1.  In other words, in this fictitious scenario, Europe could sell to the US, but the US could not sell to Europe.

China's undervalued currency is effectively putting a large tariff on American goods trying to enter China and a government subsidy on Chinese goods being exported to the US. China takes advantage of our free markets to sell us goods, but the flip side of every import is the currency transaction where there is not a free market....or any market!

Why does the US government allow the Chinese central planners take advantage of us? China should try to increase their standard of living, but not at our expense. Wealth is not a zero sum game; it can be gained without taking it from another country. 

The U.S. is literally shipping our wealth by the billions of dollars every week to China in the form of a trade deficit. Our industry and manufacturing is closing at a record pace while China is building monster factories at a record pace.

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