China’s Currency Manipulation and Dumping

Are Americans helped or harmed if China sells us stuff far below cost?
China’s Currency Manipulation and Dumping
By: George Noga – May 13, 2018

        This post about currency manipulation and dumping by China concludes our pivot to China. Whether or not and to what extent China manipulates (undervalues) the yuan is the subject of intense debate. The yuan renminbi (“CNY”) trades at 6.27 to the US dollar (“USD”). For this posting, I assume the value of CNY should be 7.50; this is at the high end of estimates and equates to an undervaluation versus the USD of 20%. The effect of China’s dumping of exports below cost also is open to much debate.

     Let’s assume, a arguendo, China subsidizes exports, uses artificially cheap labor and thereby dumps goods below cost and that these practices result in China gaining an additional 13% unfair trade advantage vis-a-vis the USA. When this 13% is added to the 20% from its undervalued currency, China’s total unfair advantage becomes 33%.

        Now, let’s say you shop online for a good pair of athletic shoes made in the USA and find ones you really like for $100. Miraculously, the very next day an overnight package arrives at your door with a pair of identical shoes made in China for $67 along with a note from Xi Jinping stating that the money you saved is a gift from the Chinese people. Do you accept the Chinese shoes and the $33 savings and consider yourself lucky; or do you question the donor’s motives and refuse the shoes and the money?

       Such acts of beneficence from the Chinese people to the American people occur not just for shoes but for apparel, appliances and consumer electronics. China exports $525 billion a year to the US; if China is exporting goods 33% below its cost, the benefit to American consumers is $260 billion per year. Note: If the nominal value of exports is $525 billion, the undiscounted value is $785 billion, or $525 billion divided by .67 (1-.33 ). When subtracting $785 from $525, we derive the $260 billion. 

       Pause to consider this for a moment. Under the assumptions used herein, China’s currency manipulation and dumping of goods result in a gift of $260,000,000,000 each and every year to ordinary Americans – this is equivalent to $2,200 for each of the 120 million households in America. Even if my assumptions are off somewhat, the benefit to American families still is stupendous. The Chinese people are sacrificing to shower us with goods at far below the cost of their components and labor.

       There is a temptation to overthink this; don’t do it! If anyone tries to complicate this or tells you not to accept gifts from China, don’t listen to them. If anyone domestic, foreign or extraterrestrial sells you something below cost, it is an unalloyed blessing. A gift is a gift is a gift and should be accepted everywhere and always without question. The recipient always is better off accepting a gift even if the motives of the donor might be nefarious. There is no need to beware of Chinese bearing gifts.

 

        China’s currency manipulation and dumping is a gift that just keeps on giving. After pocketing the $260 billion a year munificence from China, Americans now have that same amount of cash savings that they can spend (mostly in the USA) on other goods and services they would not have been able to afford absent China’s largess.

        Although economics can be complex, this is straightforward. There is absolutely no downside. It is a no-strings-attached gift from Chinese to Americans; think of it as foreign aid. If China manipulates its currency, uses cheap labor and subsidizes exports, it is an unleavened blessing for American families to the tune of $2,200 each and every year. Take the shoes and run and it isn’t even necessary for you to say thank you.


Next: Our plan to make every new baby born in America a millionaire.