Trump’s Plan for China is Unconventional, but is it Right?
As Trump continues his bombastic bid for presidency, we examine his purported plans for China. Do they make sense for the nation?
From L Todd Wood, for Birch Gold Group
With the 2016 presidential primary election cycle now in full swing, businessman and billionaire Donald Trump leads the Republican field.
No matter what you think of the man, his early realization that immigration would be a huge issue this time around, engendering strong emotions on both sides of the aisle, was simply political brilliance, hence the strong poll numbers.
However, there is another issue that Trump uses to his advantage routinely while on the stump: China, and the purported evils of the communist totalitarian regime.
The Wall Street Journal recently wrote of Trump’s comments on the issue:
“[T]he worst of China’s sins is not its theft of intellectual property. It is the wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs. Again, special interests and crony capitalism have weakened the resolve of the Obama administration in confronting China over its currency ploys. Economists estimate that the yuan is undervalued anywhere from 15% to 40%.”
This has been a favorite line for politicians for decades now, as China has indeed manipulated its currency to make its goods cheaper than the rest of the world, and to fuel its export-driven, top-down economic model.
Trump adds, “On day one of a Trump administration, the U.S. Treasury Department will designate China a currency manipulator. This designation will trigger a series of actions that will start the process of imposing countervailing duties on cheap Chinese imports, defending American manufacturing and preserving American jobs.”
The question is, does this accusation against the Chinese still hold water? Or would this Trump prescription do more harm than good to the global and domestic economy?
The Wall Street Journal Op-ed page, in a counter to Trump’s piece writes,
“The government of China—along with encouragement from the Bush and Obama administrations—successfully engineered a 45% appreciation of the yuan since 2005. The currency is now arguably fairly valued based on our calculations… The remedies Mr. Trump proposes are also off the mark. The idea of imposing unilateral countervailing trade duties on imports as retaliation for currency manipulation is dangerous, and as a businessman Mr. Trump should know better. That sort of tit-for-tat response could lead to an escalation in economic tensions or an all-out trade war. Those conflicts typically don’t end well for any of the parties involved.”
As we have written before, China is very keen to act in a responsible manner concerning its currency in order to have the offshore version of the renminbi, the yuan, included in the International Monetary Fund’s (IMF) basket of global reserve currencies, Special Drawing Rights (SDR).
However, gradually or suddenly (if the yuan is not accepted), the Chinese will need to devalue their currency further to sustain its economy and prevent civil unrest. They may have no choice as they need more and more stimulus to counter misallocated capital from their “managed capitalism.”
China plays a long game. They are in this contest to win, at any cost. The government simply does not have an alternative in their view. To allow the U.S. to stay at the top of the economic and military heap is an anathema to the communist party’s long-term goal of domination over all, not just their own people.
In this vein, China must be challenged and confronted. China is a threat to our way of life, our freedom, and our economic prosperity. That does not mean however, that we should do something that will destroy our own economy in the process.
I think the currency manipulation argument is stale. China has said it wants to move to a free-floating currency and is taking steps to do so. If they renege on this pledge, then we can always take steps to punish them.
The Chinese model will not work long-term. It is obvious they are manipulating their markets and letting bubbles in real estate, credit, and elsewhere grow bigger and bigger. Their economic model is not one for long-term success.
I would instead focus on getting our own fiscal house in order. Pay off our national debt, control our spending, and reinvigorate our capitalist economy and principals. That is what made America great and will do so again in the future.
Whether Trump is elected or not, it seems that a hot contest with China is around the corner. This will be a fight between the world’s two biggest economies, which will produce much uncertainty.
Markets hate uncertainty. Until the U.S. gets it financial house in order, fiat assets are vulnerable. And that’s all the more reason to place a portion of your portfolio in asset classes that are immune to fiat risks, such as precious metals or other commodities.
Gold continues to remain a constant and has held its value for thousands of years. When you are ready to start protect your savings we’ll be here to help.
Check out this video. Here’s how you can buy gold to protect your savings.china, currency, donald trump, Featured, special drawing rights, wall street journal