The Next China Call

I have made a lot of calls on China in the last year, all of them correct so far, but some making friends a bit upset at the time. 

This one is obvious, but worth making public:

China has just put one over on the U.S., in no-doubt private meetings.  Here is the secret deal, as it looks from in front of the curtain:

1. The U.S. stops pressuring China on its currency.  This includes a postponement by the Treasury in releasing its required annual report on nations manipulating their currencies, of which China is surely one.

2. Hu Jin Tao agrees to come to the U.S. for the nuclear discussion, and to exert further pressure on Iran via sanctions, etc.

3. China will take care of its currency on its own, soon, and in a way that does not position the country as reacting to U.S. pressures.

What a great deal all around, eh?  Everyone gets what they want. 

Already, the papers (FT, NYT) are full of stories talking about China’s sudden reconsideration of the Yuan’s value, but Not in response to pressure from the West.

Choreography is a wonderful thing.  123, 123,

There are only a couple of problems with this secret deal:

1. China will make a currency move that, all done in a year, will yield no more than 10-15% appreciation in the currency, at a time when everyone, everywhere, (i.e., all major global economics experts, including Chinese experts) agree that the real number should be 30-40%.

By doing this, China gets to look like it did the right thing, and it pulls the fangs of those in the U.S. pressuring for a (larger) change.  Instead of a trade war and tariffs, the Chinese get a slight Yuan bump.

2. Since the whole idea of sanctions is stupid, and has never worked on any country, the U.S. is trading for something that it does not need.  Sure, it looks great on the Sunday paper, but which global leader alive today thinks that sanctions will keep Iran from making nuclear weapons?  None.  No one.  What a stupid exercise, and what useless poker chips to trade for.

OK, that’s it.  China wins, the U.S. loses; Iran wins, the U.S. and the rest of the world lose; the trade imbalances continue, and nothing, at all, changes.

Great deal, Barack.  If you live in China or Iran.

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