News Bits

News Bits

April 11, 2005

Currency Meddling Won’t Help Growth
China posted a $16.58 billion trade surplus for the first quarter, compared with an $8.43 billion trade deficit a year earlier, helped by a surge in the country’s textile exports.

Chinese trade is going to be a lightning rod in Congress in the coming months. Last week the Senate voted 67-33 for an amendment aimed at Chinese currency policy that would slap a 27.5% tariff on Chinese goods if Beijing didn’t revalue its yuan after six months. Senate Majority Leader Bill Frist, R-Tenn., agreed to a vote on a stand-alone currency bill no later than July 27. House members are also weighing in. Rep. Duncan Hunter, R-Calif., and Rep. Tim Ryan, D-Ohio, unveiled a bill Thursday defining foreign exchange manipulation as a prohibited export subsidy. It would set guidelines for U.S. agencies to sanction China and protect U.S. industries. China’s currency peg has been 8.28 yuan to the dollar since the mid-’90s.The U.S.’ 2004 trade deficit with China hit $162 billion. That’s one-fourth of the U.S.’ record $617 billion trade gap.

I think this push for Chinese revaluation is a big mistake, but that won’t stop it from happening. China’s fixed exchange rate is not currency manipulation; it is the method they have chosen to conduct their monetary policy. When china buys a dollar of T-bills, it issues a dollar’s worth (8.3 yuan) of Chinese bank reserves, which shows up within a year or so as higher Chinese prices. If we force China to revalue, Chinese prices will fall. This will undermine efforts to make US goods cheaper. More importantly, it could bring Chinese growth to an abrupt halt, which would push commodity prices, and US growth and stock prices, lower. We don’t have enough history to know what will happen if China tightens monetary policy.

The truth behind the numbers is that the US is losing its competitive advantage in technology and communications equipment. Congress and the FCC have regulated the US telecom industry out of capital spending, which has shifted the focus for R&D to Asian buyers. Congress has the chance to repair the damage this year by rewriting the obsolete Telecom Act of 1996. Let’s hope they have the courage to do so.

German shootus footus strikes again
Germany’s government wants to impose minimum wages to stop migrant workers from Eastern Europe from undercutting German pay levels.

And people wonder why the EU can’t seem to grow as fast as the US and Asia! Migrant workers from the East are the only positive thing going.

It’s the Oil Reserves, Stupid
China must protect Japanese, warns Koizumi as Chinese riot police guard Japanese embassy. Beijing has the responsibility to protect Japanese nationals in China and the weekend demonstrations were “extremely regrettable,” Japanese Prime Minister Junichiro Koizumi said on Monday in his first reaction. Meanwhile the Japan times reported that Japanese East China Sea test-drilling would not to be swayed by unrest.

China’s growth has created a voracious appetite for energy supplies, which has led to a confrontation with Japan over gas reserves in the East China Sea, otherwise known as the Sea of Japan. This has caused an abrupt change in Japanese attitudes toward defense policy; they are no longer content to trust the US to protect them. We need to keep an eye on this.

Breast Implants yes; Medicines no!
Spitzer issued subpoenas to at least two of the nation’s three largest drug distributors in what appears to be a probe related to the pharmaceutical wholesale industry’s secondary market.
The number of companies missing filing deadlines has jumped this year, with some blaming Sarbanes-Oxley compliance.
Meanwhile, the FDA is considering lifting a decade-plus ban on most silicone-gel breast implants.

Does any of this make sense to you? We need to end the witch hunt mentality before doctors are forced to go back to leeches and laudanum. No, I forgot, laudanum is outlawed too.

IP Law Getting Out of Hand?
A federal appeal court rejected an effort by J.M. Smucker to patent its process for making pocket-size peanut butter and jelly pastries called “Uncrustables.”

John Rutledge

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