Smells Like Smoot

Congress and the Obama administration are tickling the economic equivalent of the dragon’s tail as they lecture the Chinese about manipulating the Yuan and increasing government spending:

Jan. 23 (Bloomberg) — Timothy Geithner’s warning that President Barack Obama believes China is “manipulating” its currency may trigger renewed tensions between two of the world’s three biggest economies.

Geithner, Obama’s nominee for Treasury secretary, also told senators the administration will press China to “adopt a more aggressive stimulus package” to boost its domestic economy. The remarks on manipulation were a shift from President George W. Bush’s team, which stopped short of using the term in criticizing China’s exchange-rate management.”

The US economy faces considerable hurdles as it struggles to regain stability. Suggesting an international trade war with the Chinese is unwise but Representative Charles Rangel seems to think he has the upper hand:

“What they can’t work out diplomatically we can work out legislatively,” said Representative Charles Rangel of New York, who chairs the House Ways and Means Committee, which has jurisdiction over trade issues, in an interview. “The committee has been saying for years” that China has manipulated the Yuan’s value, he said.”

It doesn’t help that President Obama gave his blessing to such legislation last May that would allow U S companies to petition for higher tariffs:

“In May, Obama signed on as a co-sponsor of legislation aimed at China that would give U.S. companies the ability to petition for import duties to compensate for the effect of a weak currency.”

China may have in fact manipulated the Yuan. But inviting foreign trade retaliation by suggesting that “the problem” can be worked out “legislatively” instead of diplomatically is insane. The manipulation of currency markets by foreign entities is not a new phenomena and President Obama and his Democrat Congress know this.

Combined with the unprecedented federal bail out of GM and Chrysler, which is effectively a massive tariff on foreign owned domestic auto manufacturers, what is the Obama administration doing to encourage foreign investment in the US economy? The answer is nothing. Having already given domestic steel manufacturers preferred status in the massive stimulus package proposed by PelosiCo & Reid (while simultaneously lecturing the Chinese on their stimulus plan) Congress is trespassing on territory that is fraught with protectionism. History has informed all that protectionism and massive deficit spending in a period of economic decline (recession) is a recipe for disaster. The Hope and Change administration, and its Congress, show no signs of good judgment in the imminent train wreck they are orchestrating.

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