Professor Elam

Wed March 17 2010

In the 1930s Congress passed a disaster called the Smoot Hawley tariffs, this raised the cost of goods coming to the US, of course this resulted in the rest of the world raising tariffs which slowed trade everywhere, there were smaller markets for all exports as a result. So what hair brained idea will Congress hatch this time, comparable in foolishness to Smoot Hawley, well now we have it. 

Five senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation yesterday to make it easier for the U.S. to declare currency misalignments and take corrective action. Even if the bill stalls, it may have “ripple effects” that lead the Treasury Department to declare China a currency manipulator, William Reinsch, president of the National Foreign Trade Council, said.

Obama’s goal of doubling U.S. exports in five years depends on his ability to get China to raise the value of its currency, said Sherrod Brown, an Ohio Democrat and co-author of the legislation. China’s intervention in currency markets to keep the value of the yuan, or renminbi, at a set value acts as a subsidy to exports and tax on imports, Brown said at a news conference yesterday.  Senator  Debbie Stabenow D Michigan and others are also sponsors. 

So what is wrong with this great idea?

1. The idea that this Congress is going to force another nation which is a net exporter which has a positive balance of trade and is our banker is ridiculous.  

2. Currency manipulation is todays' equivalent of tariffs in previous eras, a cheap currency acts as a boost to exports as it makes them cheaper to buy. But every country in the world cannot cheapen its currency relative to all the other currencies in the world. 

3. What is really wrong here is that Congress has made employees a liability and encouraged exporting jobs through confiscatory tax policy and high employment taxes and now a health care bill with no known content. 

4. Thanks to pin heads like Jack Welch of GE, we have exported our manufacturing and a lot of software overseas, now the business is gone, period. We need to get it back, not play games manipulating the currency. I replaced the batteries in my HP 18C this week, I was stunned to note on the back of the calculator

Made in the USA, 1986….