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CAN'T
STOP IT NOW
by Yiannis G.
Mostrous
Editor, Growth Engines
July 20, 2007
Lobbying and protectionism
destroyed the auto industry of the US. And people will need to look
toward the same reasons for the destruction of any other industry in the
future.
Politicians always fail to tell people the truth initially. They'll try
to find myriad scapegoats in order to cover their failures. They'll be
aided, as always, by certain "vested interests." Their only
care is their own pocket.
It's customary that, during an election period, the rhetoric against
everything and anything--usually foreign--reaches new highs. This time
around, China has become the favorite punching bag.
It's an easier target for sure. But it won't deliver the desired
results--except maybe some votes--even if hit dead center.
The renminbi (RNB) has been the center of all the attacks on the basis
that its undervaluation substantially hurts American competitiveness.
Notice, at the same time that the renminbi is viewed as the main
problem, it's also considered a minor currency that's not important
enough. Therefore, very few critics have bothered to examine it closer.
As recently as four years ago, a lot of people didn't even know that
China had a currency. But in the past couple years, the US taxpayers are
footing the bill for endless congressional hearings on China’s
exchange rates. Meanwhile, heroic senators are introducing every
imaginable bill in order to offer a solution that they oftentimes don't
even understand.
For
the record, I believe that a stronger renminbi will be good for China
because it will help domestic consumption and aid the country in
navigating global political and trade pressures.
Note that the Chinese also desire the revaluation of their currency. But
as I've noted repeatedly here, they'll do so at their own pace.
For
all practical purposes, China today isn't akin to Japan in the 1980s.
It's by far the opposite. Therefore, maverick senators won't be
successful in pushing it around as they did with Japan--no matter what
they'll publicly say to the opposition.
But people forget that it was only a couple years ago that Chinese
surpluses began to skyrocket, creating a problem that, until then, was
nonexistent. After all, for the last five to six years, the exchange
rate between the renminbi and the US dollar has been almost the same.
And no one-–politicians and economists alike--had any objections.
Certainly no one was viewing it as an extremely undervalued currency.
For a little while longer, I think cooler heads will ultimately prevail,
and governments in the developed economies will try to solve economic
problems with their developing counterparts without creating bigger
ones. It's taking sometime, but it will finally be understood that,
although developed economies still have a big say when it comes to the
world’s economic and political affairs, a more diplomatic approach
will produce better results.
As an aside, the UK will soon learn this the hard way, given its latest
act of comedy with Russia. For the time being, the British government
looks as if it follows the orders of certain high-profile, extremely
rich, London-based Russian businessmen.
The world is changing, and economic growth is gradually shifting from
the west to the east. This is a long process, but it's a trend that
won't stop. The US and Europe have the economic and political capital to
participate and help lead this change. Their actions overall have proven
that this is the case, and I expect that to continue.
It won't always be a smooth relationship, but it can be productive and
beneficial. Although I'm optimistic long-term, the political cycle
around the world can't be overlooked. Therefore, investors should always
critically examine these developments.
© 2007 Yiannis G. Mostrous
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