In early 2005, the US Senate began debating a bill seeking to impose a broad 27.5% tariff on Chinese exports to the United States. Congress was emotionally moved by the supposed problem of pegging the yuan to the dollar, then at about 8.28 CNY for every USD. In reality, the problem wasn’t so much dollars as ‘dollars’, meaning that because of the flow of finance across borders the flow of goods could be, though for only a short while longer, a one-way trade. In other words, even the government started to notice that so much of the stuff Americans were buying during the housing bubble was stamped ‘Made in China.’
The Chinese, for all the bluster on both sides, did listen. Symbolically, the PBOC in late July 2005 finally let CNY appreciate by a whole 2.1%. The official central bank statement declared that it was done ‘with a view to establish and improve the socialist market economic system.’ The Chinese could afford it because they had already dominated the American market and were by then starting to do the same in Europe and elsewhere.
In 2004, the Chinese had managed a merchandise trade surplus of about $33 billion. This was a dramatic change from fifteen years or so prior where an agrarian China imported almost every industrial product, from cars to microwaves and anything in between. ‘Something’ came along in the late 1990′s that completely changed the global trade paradigm.
If we take out the US trade surplus from China’s 2004 figures, however, the trade terms flip to a $47 billion deficit. It wasn’t until early 2005 that the rest of the world began to buy what America already had been for many years. American ‘demand’ was the primary basis and core of that which built China, all financed by eurodollar explosion in both directions.
This post was published at David Stockmans Contra Corner on August 6, 2016.
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