Jon Christian Ryter -- Is China Blackmailing America?

IS CHINA BLACKMAILING AMERICA?

By Jon Christian Ryter

November 14, 2007

NewsWithViews.com

China, which is feeling the sharp bite of product recalls from US vendors, is striking back at the merchant princes of America in the manner they warned the US State and Treasury Departments they might in October. They are once again threatening to dump the dollar. As they signaled their intent to follow through on what they call their "nuclear option" a week ago, the dollar plummeted like a stone swan with an anchor around its neck. And gold rose like an eagle soaring on an upward draft. Gold hit $830.70 with the news on Nov. 7, and hit $837.40 on Wednesday. Once again, the bellwether works.

In October, when one product recall after another was announced by America's premiere toy giants, and Congress began talking tough about new laws that will force foreign manufacturers to meet US product standards before their goods can enter this country, two Chinese officials warned the United States that if America attempts to force its costly manufacturing standards on China that the People's Republic of China would be forced to exercise what they called their "nuclear option"�dumping its $1.33 trillion in foreign reserves and collapsing the dollar.

When he first voiced the threat in October, Xia Bin at the cabinet level Development Research Center in Beijing said that China's foreign reserves would be used as a bargaining chip to exercise leverage over the Bush Administration and the Fed bankers who need a stable dollar to complete their globalist aspirations of creating a seamlessly consolidated world economy. After leveling the threat, Xia added, "Of course, China doesn't want any undesirable phenomenon in the global financial order."

He Fan, a Party official in the Chinese Academy of Social Sciences reiterated that Beijing had the power to collapse the US dollar if it wanted to. "China has accumulated a large sum of US dollars," he said. "Such a big sum, of which a considerable portion�$800-plus billion�is in US Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduce their dollar holdings."

Democratic presidential candidate Hillary Clinton�who is as indebted to Beijing as George W. Bush is to David Rockefeller�has called for restrictive legislation against China to prevent the United States from being held as an economic hostage to China. (Of course, Hillary taking money from a foreign country is a violation of federal law; and taking money from America's most deadly enemy is treason. It must be stressed that Hillary claims all of the money that has been shown to have come from Beijing bundlers and not honest fund raisers, Hillary has disavowed and made a grandiose show of dumping to suggest she had no idea it was foreign money. But the unanswered question is�how much of Hillary's war chest came from illegal sources? As yet, no one has identified the bundler as a Beijing bagman.) China now controls 44% of America's foreign debt. (Over the last couple of years Russia, Japan, Saudi Arabia, Kuwait and our other allies around the world stopped buying our debt bond issues. China stepped up to the plate and bought when everyone else was selling. Almost single-handedly China has kept the dollar solvent in order to protect their balance of trade.) Beijing's threat to dump debt bonds was as much a threat to the tough talk from Sen. Hillary Clinton and the Democratic Party as it was to the Bush Administration to keep the Federal Reserve and the US Treasury in check.

Beijing knows that fully exercising their economic nuclear option will trigger a dollar crash. It will then trigger a major recession�just before a national election. Bush, of course, will get the blame�but so will a couple of talk-tough members of Bush's cabinet like the Federal Trade Commission and Consumer Product Safety Commission chairwoman Nancy Nord and whose tough talk took the rhetoric against China center stage and launched a congressional campaign to enact the laws needed to force China to police the quality control of their manufacturing or find a new market for their wares.

Nord and the US Consumer Product Safety Commission and the Federal Trade Commission demanded the recall of inferior Chinese products in October. China decided to raise the specter of declaring economic warfare on the United States by dumping debt bonds if Nord did not back off. China was convinced that the Federal Reserve and the New York Stock Exchange would pressure Bush to force the FTC and the CPSC to back off.

China's verbal threats against the dollar helped push the Dow off the financial precipice. The Dow dropped 350 points. The dollar nose-dived as well, falling to $1.50 against the Euro�which was also its lowest level against the Canadian dollar in 57 years. Xu Jian, the vice-director of the Chinese central bank issued a statement saying, "The world's currency structure has changed. The dollar is losing its status as the world's currency." Affirming the plan to dump US dollars, Cheng Siwei, vice chairman of China's National People's Congress, said "...We will favor stronger currencies over weaker ones, and will readjust accordingly." He Fan said that "...China is unlikely to follow suit as long as the yuan's exchange rate is table against the dollar." He Fan noted that China will be forced to sell dollars only if the yuan appreciates in value too much.

China, however, can't dump dollars without damaging its own economy since a strong yuan puts Chinese exporters at a distinct disadvantage in the world market. Domenico Lombardi, president of the Oxford Institute on Economic Policy said there's "...no doubt that in the medium to long run [China] will diversify their currency assets. It's likely that people are overreacting to the latest comments. We need to wait a little bit before we make a firm judgment on what it means." Pundits like Lombardi are convinced the drop has nothing to with China's financial saber-rattling. Lombardi believes the drop occurred because the Fed cut interest rate. While it weakens the dollar, it also makes American-made goods more attractive on the world market.

The reality is the lower dollar is the result of two things: [1] China's dumping US debt bonds (and concern in the Treasury who is going to buy the debt bond issues in the future) and [2] the rising price of crude oil. Dean Maki, chief economist at Barclay's Capital noted that core consumer import prices are rising at the fastest rate in over a decade. Maki noted that the decline in the dollar will serve only to accelerate the rapidly declining economy, triggering a recession.

A group of Senators pushed for passage of a new bill similar to S.295 which was originally introduced last year by Senators Chuck Schumer [D-NY] and Lindsay Graham [R-SC]. S.295 would have imposed a 27.5% tariff on Chinese imports if China did not revalue the yuan. That bill died. The new measure will impose an across-the-board 20% tariff on every "made in China" product imported into the United States�even those manufactured by America's premiere manufacturers who have moved their factories to China to capitalize on slave labor. The Senate said this bill, which has strong bipartisan support in both Houses of Congress, is virtually veto-proof.

China is willing to gamble on this high stakes poker game, believing that not only do they hold the winning hand in this economic version of Texas Hold'em, but that they also control how the hand is played worldwide in this fragile house of cards. China knows if Congress exercised its own "nuclear option"�something China can't afford�that President George W. Bush would veto it. The White House's argument would be that in 2006 exports to China exceeded imports from China. (However, since Bill Clinton gave China "most favored nation's status," the United Stales has imported $6 in Chinese made goods for every $1 of US made goods exported to China.) The only reason we exported more to China in 2006 is because of the weakened dollar. US Treasury Secretary Henry Paulson warned Congress that such sanctions would undermine America's position and could trigger a global protectionist war. When it was suggested to him that the US was going to lose its status as the world's reserve currency, Paulson noted that "...A strong dollar is in our nation's interest," adding that the world's markets are the best judge of currency values. Paulson said the dollar has been the world's reserve currency since World War II. "I put the US economy up against any in the world in terms of competitiveness." he said, "...that's a fact."

While a cheap dollar increases American exports, a weak dollar spurs inflation. In this case, the weakened dollar is more the result of the rise in the price of oil than it is from China's tough talk. However, while the United States can ill afford to allow China to bully it to overlook safety standards, it can't afford to levy a tariff against Chinese goods as long as China is the primary buyer of US treasury notes and debt bonds. That poses a financial dilemma for the United Stales since at the moment, China is not only the only major nation buying our debt, but it also holds the world's largest reserve of US debt bonds and treasury notes. Saudi Arabia�theoretically our closest Mideast ally�dumped the dollar in favor of the Euro as did Russia. Europe is now decrying the dollar slide�and blaming the United States, calling the slide a "brutal currency shift." The run-up will slow the economic growth of the European Union and will increase US exports to Europe as well as Asia.

If the US government officially retaliates against China by imposing a 20% tariff on all imports, expecting that the move to force China to abide by the standards mandated by the FTC, the CPSC and the USDA, they will be sadly disappointed. China will start the global domino affect by dumping close to a trillion dollars in US treasury notes and debt bond.

Chinese officials have made it clear to US reporters that they are not signaling an intent to dump US dollars in favor of the Euro, they are merely pointing out that option is being considered�if necessary. They added that since China has pegged the yuan to the dollar, if the dollar becomes too weak,. they will be forced to move from the dollar to the Euro. China's dollar saber-rattling since 2001 has helped boost the value the Euro by 2/3 against the dollar.

The truth is that the US Treasury is between the proverbial rock-and-a-hard-place when it comes to China. China can't exercise their nuclear option without doing extreme damage to their own balance of trade�their credit card to buy weapons around the world.. Nor can the United States afford to engage in an economic war with China which would cause Beijing to stop buying our debt bonds since that would impact the liquidity of the US Treasury.

United States consumers, however, aren't bound by the treaties that govern nations�at least, not yet. We have a right to buy what we want to buy, and an obligation to leave on the store shelves items not made here that we choose not to purchase because it will ultimately rob us of our jobs. For the sake of our standard of living, the consumers in the US have an imperative need to stop buying goods made in China�or, for that matter, American branded goods made anywhere in the world except the United States of America. Even with the exodus of many of America's premier employers since the co-presidency of Bill and Hillary Clinton engineered the NAFTA jobs drain in 1993 and sent millions of American jobs�and the factories which provided those jobs�to Mexico, China and Indonesia, the United States still remains the world's most important consumer nation.

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As we sit and bemoan the loss of those middle class manufacturing jobs, what remains of the US job force is still being "downsized" by an unchecked influx of illegal aliens who will work for a fraction of what the US worker is paid, we still hold enough economic clout today to reverse the impact of NAFTA and the exportation of the US economy to the human capital rich nations of the third world. When those manufacturers�who exported our livelihood�want to sell the American branded products they are now making in China and sending them back to the United States through NAFTA's swinging doors in Mexico, they must place those products on the store shelves in the United States to turn a profit. If we refuse to buy those products, and leave them on the store shelves at Walmart, Kmart, Target, Kohls, JCPenney, Sears or Dave's Discounts or on the showroom floors of Chevrolet, Ford or Chrysler, then not only will we protect what jobs remain in America, we will force America's merchant princes to bring those exported jobs back to America. If we are going to save America, we need to begin with the American branded goods that built America. If it's an American brand name, before we buy it, that product had been have a label that says Made in America. If we don't draw a line in the sand today, we will fund not only our economic destruction but our physical demise because the nuclear missiles that come at us from the Mideast and the Far East will all say "Made In China." Our national motto from today forward must be, "if its not made here, its not sold here."