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Thursday, October 6, 2011

The China Blame Game

What if the U.S. Launches Trade War With China

While the entire world is focused on the debt crisis in Europe, there’s another crisis quietly erupting here in the U.S. that could be just as dangerous. It has the potential to tip the whole global economy back into recession. We’ve seen it happen before, about 80 years ago.

After unemployment soared to 9% back in 1930, politicians were under a lot of pressure to create jobs. So the U.S. government implemented the Tariff act of 1930. This new act raised tariffs on imported goods to protect Americans’ jobs from foreign competitors.

The result? Seventeen countries responded with their own tariff plans. Suddenly, we had a trade war on our hands. That trade war caused a collapse in global trade, and ended up deepening the global depression and increasing unemployment.

Now the U.S. Senate could make the same mistake their predecessors made during the Great Depression. While this would be disastrous to the global economy, it all depends on what Congress does next.

The Bill that Would Guarantee a Global Recession
This past Monday, the U.S. Senate voted to open debate on a bill that would impose tariffs on imports from countries with undervalued currencies, such as China. In response, the Chinese government quickly warned this would lead to a trading war. As the Chinese Foreign Ministry said, this bill “will severely upset China-U.S. economic and trade relations.”

In other words, China is telling us that if we approve the bill, it will retaliate with protectionist measures. This is a fight where everyone loses.

The European debt crisis is getting out of control, and the U.S. is heading into another recession. A trading war between the world’s two largest economies is the last thing the global economy needs right now. But I wouldn’t be surprised if politicians approve the bill. After all, you can always count on them to do the wrong thing.

It’s all China’s Fault

The tensions between China and the U.S. can easily escalate in the months ahead, especially if the global economy continues to slow down. With the U.S. struggling to grow, there’s increasing pressure for politicians here to “do something.”

Instead of implementing the right policies here at home to promote job creation (reducing taxes and regulations), Washington prefers to blame China for our problems. It’s easier to say China is stealing “American jobs” by keeping its exports cheap.

Even Bernanke is now attacking China. This week, our Fed chief told Congress: “The Chinese currency policy is blocking what might be a more normal recovery process in the global economy. It is to some extent hurting the recovery.” After failing to help the U.S. economy with its monetary policies, the Fed is now also blaming China for our problems. Typical.

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When The Shallow "Think"

The sudden interest in assigning blame for this government's failed policies to China is typical of this administration. The Obama Administration and the Democrats in the Senate seem incapable of thinking a problem through, so they blame. We know anything they do will have consequences; blithely ignoring personal responsibility does not reduce the burden the country will bear.

The Wall Street protesters are of the same mind set. A complete and thorough understanding of the situation would help them formulate useful policy, which would probably be to go home. Things are the way they are for a reason. Until you develop a sound understanding, anything you do will make the situation worse. But they appear to believe they can overcome problems by wishful thinking and ignoring them. Choruses for revenge for imagined wrongs is not helpful. The marchers mean nobody any good.

They are perfect suckers.

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