Friday, December 05, 2003
Steel tariffs lifted
The Washington post article
Many of my readers (if indeed that is plural) may think there is nothing more boring than steel tariffs. Let me make this more real. Steel is used everywhere in everything. Lower steel prices affects obvious things like cars, but non-obvious things like Milk. Almost all equipment and most everything else is made of steel. Lowering steel tariffs saves you money on everything you buy.
Let me ramble for a bit.
I think the Bush administration imposed the steel tariffs as a stop gap measure while they planned out how to increase manufacturing jobs in the US. They have already implemented their plan. They have abandoned the strong dollar policy that was followed since economics became a policy. This raises exports and hence jobs making stuff to export.
Let me explain the strong dollar policy. The strong dollar policy says that the dollar is gaining against all currencies all the time. So if you have a dollar it would be worth say 5 pesos today, 6 pesos next year, 8 pesos the year after, etc. Basically that the dollar will be the defacto international currency and American's will seem very rich when visiting the rest of the world. This is great for American consumers who have dollars because the countries making our stuff for us don't need a lot of dollars (translated into local currencies like pesos) to make a profit.
So with a weak dollar things from China, Mexico, and Europe cost more to buy. If the dollar is worth 10 pesos the item will be half the price of when the dollar is 5 pesos.
But on the other hand a weak dollar makes it easier for us to sell things to other people. We need less pesos (or yen or euros) to make a dollar and make a profit.
So steel really still has tariffs, just the same ones everybody else has. And the tariffs are in the form of weakened dollars.
Which brings us to China. China has pegged their currency to the dollar, only they pegged it low. So when the dollar goes up the Chinese currency goes up, and when the dollar goes down ditto. That is why everything we buy is made in China. The Chinese government is making sure that China has an unfair advantage. They manage to do it because they print the money, own everything in the country, run the banks, etc.
So when we had a strong dollar China was essentially subsidizing their exports to the US with money from exports to other countries by fixing their currency. Now that we have a weak dollar China is subsidizing their exports to the US with whatever money they can find.
Which brings me back to the weak dollar. Besides helping exports from the US it also helps apply lots of pressure to China. We are essentially playing a game of chicken at this point. China is trying to keep its currency pegged as long as it can, without bankrupting the country while we are keeping the dollar low as long as we can stand to relinquish our defacto international money title to the euro.
And to help matters Bush started quietly adding tariffs to some Chinese goods like textiles (read clothes). Just to add a little heat to the fire.
Within the next year expect some major changes in US China relations including a very different trade policy.
Many of my readers (if indeed that is plural) may think there is nothing more boring than steel tariffs. Let me make this more real. Steel is used everywhere in everything. Lower steel prices affects obvious things like cars, but non-obvious things like Milk. Almost all equipment and most everything else is made of steel. Lowering steel tariffs saves you money on everything you buy.
Let me ramble for a bit.
I think the Bush administration imposed the steel tariffs as a stop gap measure while they planned out how to increase manufacturing jobs in the US. They have already implemented their plan. They have abandoned the strong dollar policy that was followed since economics became a policy. This raises exports and hence jobs making stuff to export.
Let me explain the strong dollar policy. The strong dollar policy says that the dollar is gaining against all currencies all the time. So if you have a dollar it would be worth say 5 pesos today, 6 pesos next year, 8 pesos the year after, etc. Basically that the dollar will be the defacto international currency and American's will seem very rich when visiting the rest of the world. This is great for American consumers who have dollars because the countries making our stuff for us don't need a lot of dollars (translated into local currencies like pesos) to make a profit.
So with a weak dollar things from China, Mexico, and Europe cost more to buy. If the dollar is worth 10 pesos the item will be half the price of when the dollar is 5 pesos.
But on the other hand a weak dollar makes it easier for us to sell things to other people. We need less pesos (or yen or euros) to make a dollar and make a profit.
So steel really still has tariffs, just the same ones everybody else has. And the tariffs are in the form of weakened dollars.
Which brings us to China. China has pegged their currency to the dollar, only they pegged it low. So when the dollar goes up the Chinese currency goes up, and when the dollar goes down ditto. That is why everything we buy is made in China. The Chinese government is making sure that China has an unfair advantage. They manage to do it because they print the money, own everything in the country, run the banks, etc.
So when we had a strong dollar China was essentially subsidizing their exports to the US with money from exports to other countries by fixing their currency. Now that we have a weak dollar China is subsidizing their exports to the US with whatever money they can find.
Which brings me back to the weak dollar. Besides helping exports from the US it also helps apply lots of pressure to China. We are essentially playing a game of chicken at this point. China is trying to keep its currency pegged as long as it can, without bankrupting the country while we are keeping the dollar low as long as we can stand to relinquish our defacto international money title to the euro.
And to help matters Bush started quietly adding tariffs to some Chinese goods like textiles (read clothes). Just to add a little heat to the fire.
Within the next year expect some major changes in US China relations including a very different trade policy.
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