Thursday, August 09, 2007

Obvious Empty Threat

China threatens to sell off U.S. bonds if the U.S. Congress imposes tariffs on Chinese goods.

Now really, that is a quite laughable threat, one which most anti-Chinese U.S. politicians are likely to answer with: "Go ahead, make my day".

The reason for this is that the reason why China bought these bonds in the first place was to prevent the yuan from rising in value, and it is this policy which is the background for the threat of tariffs. In other words, China is threatened with tariffs because they prop up the value of the dollar. And so now the Chinese say that if tariffs are imposed on them, they will stop the policy these tariffs are designed to end! Not much of a threat! Moreover, the reason that the Chinese have had to hold down the value of the yuan is to boost exports. Does anyone then believe that they would be willing to aggravate the negative effects on exports by dumping the dollar?

While Chinese currency policy have long been irrational, this threat is not only irrational but pathetic too.


Post a Comment

<< Home