In the upside-down world that passes for our government, the House has just passed legislation pressing China to raise the value of its currency. According to House Ways and Means Committee Chairman Sander Levin (D-MI), "China's exchange-rate policy has a major impact on American businesses, and American jobs, which is what this is all about." That may well be true, and yet there is an important segment of American business, ranging from such American industrial icons as Corning, FedEx, General Motors, Goodyear Tire and Rubber, among many others, who have voiced their concern that such legislation would poison the well of U.S.-China commercial relations, exacerbating feelings of mistrust and suspicion. Last Thursday in New York, in a meeting with Chinese Premier Wen Jiabao, President Obama indicated that he wants to see "more action" relating to the value of the yuan. Other than the value of the yuan, there are significant and important trade issues with China extending to market access, technical data, patent protection and copyright infringement, which certainly need be addressed.
While the legislation has passed in the House, it remains to be seen whether the Senate will follow. Yet what is ironic is that here we have a situation whereby China, by holding down the value of the yuan, is able to flood us with cheap goods that many of our unemployed and the many newly impoverished can at least access. China's trade balance with the United States, over the first seven months of the year, has widened to $145 billion from $123 billion the year before. Significant? Yes. But hardly when you consider the distortions visited on us by OPEC and its allies in the oil industry.
The price of oil has escalated over the last decade by a factor of more than five and since the first months of the Obama administration has more than doubled by more than $40 per barrel (from the low $30/bbl to the mid $70/bbl). Multiplied by current oil consumption in the United States of some 20 million barrels a day, that comes to an increase of $800,000,000 a day, or near $300 billion a year going into the rapacious pockets of the Organization of the Petroleum Exporting Countries (OPEC) and the oil industry and its interests. That, with nothing for us to show for it expect having had our pockets fleeced. And then one needs ask, where is the outrage here, and where is our vigilant Congress, our administration, our somnolent Justice Department and Federal Trade Commission, not to speak of our oversight agencies such as the Commodity Futures Trading Commission (CFTC), while the oil boys are taking us to the cleaners? At least the Chinese are delivering bargains.
Where is the outrage from this White House at OPEC and its policies, and that of its putative leader, Saudi Arabia, restricting oil production to achieve artificially high prices and their supportive allies in the oil industry who benefit in the wake of the OPEC cartel's manipulations?
Where is the intercession by our oversight agency, the CFTC, led by Goldman Sachs alumnus Gary Gensler, in the highly suspect oil-trading activities on the commodity exchanges that keep prices at astronomical levels and have left large swaths of the oil trade itself puzzled (Please see "BP's Smoking Gun and the Manipulation of Oil Prices," 06.30.10)? In January of this year, the CFTC announced it would vote to set position limits on energy trading on the exchanges. Since then, a deafening silence. (Question: Are there laws in place that prohibit these "commissioners" from taking employment with the very firms/industries they are overseeing, or is serving on these commissions simply a pathway to a sinecure in the very industries under surveillance? And if so, how long can we tolerate it continuing?)
Bringing the price of oil down to levels that reflect a true market dynamic, say achieving a price level at the low $30/bbl, as was the case in February 2009, or less (please see "Why Are We Paying $50 a Barrel for $20 Barrel Oil?," 04.27.09) would save the nation hundreds of billions now being transferred to oil interests.
Would lower prices result in higher consumption? Yes. But paying oil interests to keep consumption in check borders on the insane. There need to be government programs that restrict the usage of petroleum-based gasoline (not biofuels nor electric, and so on) to current levels or less through voucher programs (please see "The Energy Solution That Dare Not Speak Its Name," 07.17.07) or whatever program is workable rather than the transfer of our national wealth to the oil nabobs.
Consider what those sums could do were they applied to a national infrastructure program such as high-speed rail or improvement of our inland waterways and port facilities, thereby enhancing our export capabilities and the thousands upon thousands of jobs that would result. We would even begin to give China a run for their money from our level and enhanced playing field.