House slaps China on currency policy, deepening trade dispute

http://www.washingtonpost.com/wp-dyn/content/story/2010/09/29/ST2010092907303.html?sid=ST2010092907303

No one wins in a trade war, and the US will definitely lose this one.

The House of Representatives voted Wednesday to punish China for policies that unfairly favor its exports at the expense of the United States and other countries, the latest volley in what is developing as a global battle over jobs and commerce.

Brazilian Finance Minister Guido Mantega said this week that a quiet "currency war" is underway.

The Fed and US Treasury are doing everything in their power to devalue the USDollar. And folks wonder why owning gold isn't "risky." While the USDollar is the world's reserve medium of exchange, it is proving to be a horrible store of value.

China hints it could dump U.S. bonds

http://www.moneynews.com/Headline/China-Fires-Shot-Over/2010/09/14/id/370164

The Chinese dumping US bonds will cause yields and interest rates to soar, which will unravel any hopes of a US economic recovery. Is Congress really thinking this through in accusing the Chinese of currency manipulation and threatening to impose import tariffs? My short answer is no.

Anti-dumping sanctions

I've posited this hierarchy for a while: first trade imbalances between sovereign countries, then sanctions and tariffs, then trade wars, and finally military conflict. Let's hope cooler heads prevail.

http://finance.yahoo.com/news/US-China-announce-antidumping-apf-1955690004.html?x=0&sec=topStories&pos=main&asset=&ccode=

Taxes and a competitive workforce

A sales tax would hurt lower income people. What we need is a flat income tax rate. It encourages investment and risk-taking among the well-to-do.

While taxes and tariffs hurt imports and exports, America's uncompetitive workforce is what's driving manufacturing jobs out of the country. There's no getting around that fact. It's empirical by definition. Think about it: if a company performs a site search for manufacturing facilities, they're going to take into account the cost of doing business in every location, domestic or offshore.

I've actually gone thru the process. I worked for a small, high-tech company in the early 90's, and we already had manufacturing facilities in Korea and the States. We kept our US plant for its proximity to our R & D team, but we ended up expanding into Costa Rica fdue to its high literacy rate, low-cost labor, tax incentives, time zone (vs. overnight difference in Asia) and English-speaking managers. It turned out we were the 2nd high-tech company to take advantage of the tax-free enterprise zone. Intel was the first.

The chase for the highest bang for your buck is in constant motion. At one time, Mexico, Japan, and Korea were the objects of our ire. Then it was China and India. Well, now they are losing jobs to countries like Vietnam, Malaysia and Indonesia. All have their pros and cons. But the bottom line is that as long as your workforce can climb the value chain (higher skills, higher knowledge, higher productivity), they won't be outsourced. American workers have not kept pace with that value curve.