24 July 2005
China Has Bought Market Share
In yesterday's New York Times, Louis Uchitelle reported on concerns about the risk that China will cut loose the U.S. economy by forcing a large revaluation of the yuan rate of exchange. But China's strategy is the old mercantilist one again. China has bought U.S. market share for its manufacturers by keeping its exchange rate undervalued. Now, it is in a strong position to increase its revenues from sales in the U.S., allowing it to build capital for acquisitions of multinational corporations, their technologies and world business dominance.
The danger China runs is to wreck the U.S. economy by going too fast. It must continue to invest in U.S. capital markets by buying Treasuries in order to keep interest rates low enough to ballast the consumer demand that generates the flow of cash into its economy. The Chinese government has learned its lesson well about how to succeed in competition with other suppliers of the American consumer. If they also learn that today's interdependent world is not a zero-sum game, they will not allow their economic expansionism to threaten confidence in the dollar.
In yesterday's New York Times, Louis Uchitelle reported on concerns about the risk that China will cut loose the U.S. economy by forcing a large revaluation of the yuan rate of exchange. But China's strategy is the old mercantilist one again. China has bought U.S. market share for its manufacturers by keeping its exchange rate undervalued. Now, it is in a strong position to increase its revenues from sales in the U.S., allowing it to build capital for acquisitions of multinational corporations, their technologies and world business dominance.
The danger China runs is to wreck the U.S. economy by going too fast. It must continue to invest in U.S. capital markets by buying Treasuries in order to keep interest rates low enough to ballast the consumer demand that generates the flow of cash into its economy. The Chinese government has learned its lesson well about how to succeed in competition with other suppliers of the American consumer. If they also learn that today's interdependent world is not a zero-sum game, they will not allow their economic expansionism to threaten confidence in the dollar.
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