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Comment by rossdavidh | Hacker News Reader

So, really, is there any doubt that this is true? China's currency exchange rate has been abnormally stable for a long time, and the Obama, Bush, Clinton, Bush, and Reagan administrations all knew it was the result of currency manipuliation. They just found it politically unpalatable to admit it out loud.

The real question would be, why is the U.S. finally admitting this out loud? 1) amping up a trade war 2) decoupling U.S. economy from China 3) trying to leverage China into doing something differently, perhaps regarding North Korea

Some of these, of course, would interfere with others, for example you can't use it as leverage in #3 if China thinks you'll keep pursuing it anyway no matter what, due to #1 or #2.

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One person’s ‘currency manipulation’ is another person’s ‘monetary management’. https://en.wikipedia.org/wiki/Bretton_Woods_system:

”The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments”

(See also https://en.wikipedia.org/wiki/Fixed_exchange-rate_system, which lists many examples of ‘pegging’)

Tying the currency to the price of Gold is the opposite of manipulation. That was the point.

Actually China was designated currency manipulators by Clinton from 1992 to 1994

Interesting. What changed in 1994?

China reformed their currency. See the historical exchange rate for RMB: https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rat...

It went from 6 RMB/dollar to just less than 9 overnight. It was basically a crazy rate (no one would use that rate unless forced) before the reform.

Before that there was even a dual system of foreigner money and local money, only foreigner yuan could be used at the friendship department store...it would have been cool to visit China before 1994.

I visited in 1991 for three months as a 14 year old. I don't recall a dual system (unless it was voucher based?), but I remember the friendship department stores and loads of other interesting things - Russian-styled hotels in Xian, Pudong being basically farmland, snakeboats on the Huangpu, etc. It had changed a lot by the time I next visited in late 2003. I don't think they yet had a McDonalds, but there was a three-storey KFC on Tiananmen that was popular. Yangshuo at the time was a very basic village which made it very charming. I remember staying at a guesthouse used for diplomats near Beidaihe - the mattresses we kids slept on were about half an inch thick. At the end of the trip, we left on a slow-boat from Shanghai to Hong Kong, and the elderly Chinese in the gaming room taught us Mahjong on the multi-day trip.

McDonald’s has been in China since the late 90s, there was even a couple of Starbucks when I visited in late 1999! 94 is sort of what I see as the cutoff between old and new China.

What’s funny is Starbucks in China is considered high end coffee shop (it literally cost $8 for an ice latte). So you can even see “influencers” bragging themselves there

If you think that's funny, you should see the Pizza Huts.

That’s true. To be fair though, Chinese version of Pizza Huts & KFC is whole another level better

Pizza Hut sure, but KFC is similar to its American fast food incarnation. Starbucks serves as the consistently nice place to hang out, in both the USA and China, so no surprise there. Interesting aspect that in China there are many less TOGO orders, people are really paying for the nice place to hang out part.

Is Pizza Hut still considered fine dining these days?

In China it is more on par with TGIF and such chain restaurants.

They're trying to upscale it even more [1], and when they first entered the China market, they were considered upscale relative to other options [2], and were far more sit-down oriented than their US branches during that long-ago time period. Since then, options have proliferated, and competition has heated up to the point that such low-level differentiation is no longer sufficient, hence their current even greater upscaling efforts.

I'd like to hear from Chinese HN readers who grew up remembering Pizza Hut arriving in their locale, and how it was viewed then versus now with the greater competition. With innovations like Haidilao's highly-automated (not fully-automated) robotic restaurant [3] for locals, and even Tier 2 cities with business class Western hotel chains like Sheraton boasting every day dinner buffets that put US Sunday brunch at Four Seasons to shame, I think Chinese citizens in most metro areas have an embarrassment of culinary riches in options now. The local hole in the wall restaurants in the more rural areas that I tried were also a delight. To stay at the top of the game, Western restaurant chains have a high bar to clear, especially as many home-grown Chinese restauranteurs have cottoned onto how dining out is not about food, it is about entertainment.

[1] https://www.reuters.com/article/us-yum-china-hldg-pizzahut-f...

[2] https://www.quora.com/Why-is-Pizza-Hut-so-much-better-in-Chi...

[3] https://www.youtube.com/watch?v=61y2nAE8GsI

> $8 for an ice latte

You have not been to their "reserve" stores where they sell noname American whiskey for $20 a cup

This is a funny things that happened with many American brands in China.

McDonalds has desk service, and actually quite satiating meals

Wallmart turned into a somewhat upscale store

KFC - Same story as Mac

Pizza hut... Ever seen a $50 pizza hut pizza meal?

Wendy's? Probably along same lines

Buick!!!!!! Pffffffff!!!!! - China is the one of a kind country where people will buys a car falling apart as you drive just because it is American.

Other GM brands, Ford, Lincoln - more or less the same on a lesser scale. Ford was a latecomer to selling "Americanness," but I think they just got it right now. https://www.reuters.com/article/us-ford-motor-china-lincoln/...

GE appliances (actually Haier now) - same story

I even recall stories of some "made in USA" clothing and apparel going big

I personally saw a very plain looking black plastic sunglasses going for $100+ with "Made in USA" and your flag boldly silkscreened on it.

How did I miss that? Interesting. So, that makes today's announcement still significant, but not unprecedented. We will see if the response is similar to last time.

1) and 3) to a lesser extent.

China's currency has been pegged to the USD for some time now. This is actually a common arrangement. A currency peg is basically a commitment by a government to keep its exchange rate with another country at a certain value, mostly to aid exports. It does this by buying and selling currencies, usually leveraging very large reserves.

There are several reasons why the past few Admin. have tolerated the currency peg. A cheaper Yuan means that US consumers get better prices. Also, China buys a lot of Treasuries as part of their sovereign wealth fund. It's still a bitter pill to swallow if you're a US manufacturer or exporter, though. The currency peg also puts downward pressure on real wages for Chinese workers, since it devalues the currency in which they get paid.

What happened in the past few days was that the Chinese central bank decided to push the value of the currency down even further, prompting a symbolic US response.

> prompting a symbolic US response.

What makes it symbolic?

So far, it's just words, really. If it results in a WTO finding against China, we could expect it to be followed up by something non-symbolic.

Well, so far the US only designated China as a currency manipulator. No actual action followed about that designation.

My take is that is just a way to pressure China to accept other measures (like increased tariffs) for now.

> why is the U.S. finally admitting this out loud?

4) The US President is not well. He saw that the stock market went down, so he tweeted a thing. This then became policy simply because he tweeted a thing. As the US lurches from crisis to crisis, this will be forgotten, as many things have before [0,1,2], and there is not a good chance that the thing will be enacted.

[0] https://www.washingtonexaminer.com/opinion/trump-keeps-makin...

[1] https://time.com/5175729/donald-trump-broken-promises/

[2] https://www.washingtonpost.com/business/2019/08/06/trump-is-...

Perhaps this is the first US President in decades, who either out of raw courage, sheer necessity or personal (so far undetected) corruption, called out what has been known for the entire time:

1. That China manipulates its currency to improve its economic competitiveness

2. Restricts access to its domestic markets

3. Uses North Korea in negotiation leverage

4. Uses trade deals to capture foreign territory (e.g. the Sri Lankan port project)

Using an ad hominem (“not well”) to discount the democratically elected, leading political actor of a country, seems to be a uniquely American trait (I grew up in India, where we know our politicians are corrupt, but highly intelligent rational actors).

Ad hominems are not a useful tool to try and understand motivations of political actors. It’s ok to say ‘I don’t know why’ when the reasons for an action seem opaque.

US decoupling itself from China would have an avalanche of effects, including huge inflation on most consumer goods, and outright product shortages. China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.

The fed has unlimited control over the rates. They could literally just buy out every bond in existence.

I don't see how that works. If the US Government has to sell bonds to borrow money to finance the deficit, and buyers start disappearing, they have to raise interest rates to make the bonds more attractive to the remaining buyers, don't they?

Nope because the Federal Reserve can issue new Federal Reserve notes (aka money) to the US Government to buy their bonds at any price point. As the other commenter pointed out this would cause inflation (as it increases the money supply)

I see. Printing money to buy new financial assets would also cause greater wealth inequality and populism, although maybe those are seen as benefits to the current administration.

I could be wrong but I don't think buying US treasuries would directly increase wealth inequality, since the money is being used to fund the US government. If the Fed bought other more private assets off the market (which I believe it does) then yes it could increase wealth inequality

Possibly, I may be confused between simply buying treasuries, and quantitative easing. Still learning!

To broadly simplify:

Buying treasuries = the Fed giving money to the US government

Quantitative easing = the Fed giving money to banks

In the case of the US, the entire game is also complicated by the fact that the US dollar has insinuated itself into the global economy. Most critically in oil markets.

Because of this, there are some things the Fed can do (mostly) without the consequences other countries would face.

This would increase wealth inequality because it’s mostly well-off Americans that own financial assets.

Look at the wealth inequality increase since 2008. It can mostly be attributed to federal reserve QE policy.

Products don't grow on trees.

If the fed buys every USD bond in existence ( aka monetize the debt ) - it would lead to a good amount of inflation.

Inflation isn't global, it can easily happen in economic sectors that exclude the vast majority of the population.

Yes, but the pressure to pay off those bonds would be deflationary, so in order to sustain the inflation next the Fed would have to do something even more extraordinary! AFAIK this policy pathway leads ultimately to bond forgivenesses (or funky bankruptcies) that eliminate deflationary pressure but may well have the unpleasant side effect of radically adjusting the fiat currency system.

> Pay off those bonds

I don't think that would happen. They will just borrow ever more. Which if debt increases slowly enough, is sustainable but causes inflation.

How do you mean? If the Fed creates new money and buys bonds with it, the Fed can continue to hold them forever (really just until they mature) if it wants to. Then the Fed is more or less part of the government, so when the bond matures the Fed takes the bond to the treasury which gives it cash, then it gives the cash back to the treasury. It's like the bond evaporates into nothing when it matures while the Fed is holding it.

If the Fed theoretically bought all the bonds then it could obviously no longer increase the money supply by buying bonds, but we're a long way from that, and even then the Fed could still create new money and give it directly to the treasury to spend in lieu of collecting taxes. Or in the utopia where buying all outstanding government debt and funding the entire federal budget out of new money still hasn't caused the desired amount of inflation, to use to enact a negative income tax.

Yes and no. Let me give you an example: if 70% of Americans get $40K bonus per annum from the fed, it will lead to inflation. However, if the same amount of money (70% of 300M times $40K =8.4T) is given to ten billionaires, it won't lead to inflation.

Only if the billionaires don't spend, invest or hold it in a bank.

Any of the three, it will go back to the market and result in inflation.

You are describing inflation caused by consumption (i.e. high demand driving up prices).

The inflation the OP was describing is the massive inflation caused by printing money.

The US bond is effectively an IOU representing US dollars the USA owes the bond holder.

For the USA to buy back those bonds they only have two choices:

1. Run an strong economy earning lots of US dollars (i.e. a trade surplus) and use that USD income to buy back those bonds.

2. Turn on the printing press and print lots of USD to buy back the bonds.

That later option would render the USD worthless and since most commodities are priced in USD that would also lead to hyper inflation.

Options you missed:

3) sell more reserves (gold, currency)

4) bond swap with other countries

There are second order effects: if billionaires start buying stocks, thereby increasing the value of RSUs that tech employees hold, this can cause inflation in housing prices.

> China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.

Before that happens, the capital exodus demanding to liquidate their Yuan for USD would have burned through the country's USD reserves and they would be insolvent. This is quite similar to what happened in South Korea in 1997 and it took IMF intervention to stabilize the country. The PBOC could limit how much a person can sell, but this would crash their currency (e.g. Venezuela) almost instantly.

As much as people want to hate on Trump and/or the US, China is in a weaker position here. Don't get me wrong, both countries suffer, but only one of them would see its financial system collapse.

> "...but only one of them would see its financial system collapse."

Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose.

While China has certainly developed in the last couple decades they are still relatively used to living with less. On the other hand, Ameicans lose their minds when Facebook goes down for an hour.

That is, there would be bedlam in the USA. China much less so.

>Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose.

Nothing is ever certain and that's not how people make decisions. What are you waiting for Chinese to use manipulated currency to buy local factories all over the world? It's already nearly too late.

> Nothing is ever certain.

That's exactly my point. I was pointing out that unless the previous comment was absolutely true (i.e., China would be wrecked and the USA would not be) then even if both fare badly the USA would __relatively__ be hurt more.

I disagree and I don't think that conclusion logically follows from what you said.

America has free markets and a decentralized, bottom-up system that results in entrepreneurs and private entities deciding how to allocate capital. There may be temporary pain but wherever there is opportunity an entrepreneur will step in.

China has zombie enterprises, their financial statements are lies, and cities built by bureaucratic maneuvering over market need.

I will always bet on the American private sector over the government-run towers of lies.

And of course all the product you bought that were made in China are lies, they don't exist at all. And obviously America will be able to make these products despite having about 0 unemployment, but hey, magic happens here amiright?

> And obviously America will be able to make these products despite having about 0 unemployment

That's what's called entrepreneurship. People will get rich making these products that are in sudden demand.

> obviously America will be able to make these products

American entrepreneurship doesn't mean all the manufacturing would take place in America. Entrepreneurial people are already moving to build more manufacturing in other countries where labor is less expensive and more plentiful than America. I don't think anyone was arguing that America would manufacture everything they currently import from China.

Even if the companies laterally move overseas manufacturing to other Asian countries, the end result is still China losing economic control over the United States.

Can't those other countries start behaving like China? Sure, but doubtful it would go anywhere.

And this happened instantaneously with a wave of magic wand and no costs, right?

The cost to the USA would make the recent debt crisis look like a picnic.

There are lots of countries that are neither the US, China, or in Europe.

If China decides it doesn't want to trade with the US, there are plenty of places that will.

And honestly, China had already reached the limit of an export-based economy. Growing your national economy on labor arbitrage only works up to a certain level of per capita wealth.

Production is already moving to other places in SE Asia. Vietnam is one of the big winners. So I wouldn't worry too much. It would only make things more flexibile as moving production/capital out of a smaller country has less of an impact.

America’s cities are based on zoning laws designed to do racism in 1900, and the rest is based on the federal highway system. Not very free market either way.

> America’s cities are based on zoning laws

These can and do change, with a single city council meeting. There's nothing impregnable about existing zoning. As usual, the dollar dictates the rules (having been party to 2! eminent domain proceedings in Southern California).

> As usual, the dollar dictates the rules

People really seem to believe this, but it always takes them to wrong conclusions here. For instance, everyone thinks California esp. SF is expensive because of "rich developers" but it's not. It's expensive because armies of retired people come to city council meetings and shut down any development because it'll hurt their 60s nostalgia.

Now, those people are acting to raise their own property values, but that's not why they're doing it. They genuinely just hate people taking their parking spots and think cell phone towers will give them cancer.

I believe it because it's demonstrably true.

> It's expensive because armies of retired people come to city council meetings and shut down any development because it'll hurt their 60s nostalgia.

Maybe in some areas, but in Southern California this is fantasy.

(California) Brea's mall expansion forced eminent domain on founding neighborhoods for commercial development. That never came and was sold back to new developers for gentrification. I had a property that I was paid well for, but I did not want to sell. So I bought into Santa Ana.

In 2009 The Irvine Company put out magazine that detailed the commercial expansion to the adjacent 2525 N. Main Street and eventually the Park Santiago neighborhood. That has been in progress for 2 years, after the necessary city council members were termed out of course. The NIMBYs there are of the aforementioned demographic, alongside their descendants. It's as ineffective. I have pre-emptively sold, but you can still attend the futile meetings if you like (https://park-santiago.com/)

Maybe the city is lacking a tax base. That tends to happen, since another thing the retired crowd did was vote themselves out of paying property taxes. When they do lose a battle, it can be because the city needs some sales tax and commercial property to keep the schools open. (See Cupertino - they can lock out apartments for a decade but can't stop Apple from doing anything.)

The US can import stuff from any number of other countries at higher prices. Who is China going to send its manufactured goods to?

The US accounts for just under the 19% of Chinese exports. That is not trivial, but the domestic (and non-US international) market is growing fast enough that it can absorb that hit faster than it would take other countries to develop capacity to make those goods at the standard that American buyers demand.

Sure, it would mean lost economical potential for China, but by no means would it leave China with no place to send its manufactured goods.

Really? Seems obvious to me that its the opposite.

The US can always find other countries that manufacture things for cheap. China can't find other customers. The domestic demand isn't remotely high enough to propel their mercantilist economy, ironically due to the fact that the currency manipulation of the yuan has suppressed the wealth of Chinese citizens by devaluing their savings.

The idea that Americans are too weak and whiny to tolerate inconveniences can be refuted by every natural disaster here. People band together, and grin and bear it. Just like every other nation.

How a nation where most of the older generation have only 1 child to support them will fare with an economic crash is uncertain, because the one-child policy was an experiment that's never been attempted before. I think it certainly boosted wealth, but I suspect it created a society that is less resilient.

China already has other customers and a big and growing internal market. Of course, USA is one of the bigger customers but not the only.

On the other hand, USA cannot import enough copper, aluminium and iron... (It's mined in China and Chinese controlled territories...) And create and staff factories out of thin air.

I'm sure those minerals are mined elsewhere.

In copper, top 3 are: Chile, (one fifth) China, Peru (similar to China).

In iron: Australia, Brazil (half of former), China (similar to Brazil).

In aluminium: China, Russia (similar to China), Canada (tenth of former).

So except for aluminium, this would be very problematic but not insurmountable. I bet Russians won't sell their aluminium to US without many strings attached.

Australia and Guinea both have more bauxite than China, it's just that China currently refines more bauxite into aluminium than the former.

Iron is incredibly abundant in the USA, and regarding copper, see here:

https://www.usgs.gov/faqs/how-much-copper-has-been-found-wor...

"Of the identified copper that has yet to be taken out of the ground, about 65% is found in just five countries on Earth -- Chile, Australia, Peru, Mexico, and the United States. "

Who exactly will be demanding to liquidate their yuan? Offshore yuan deposits amount to under ¥2tn. China has foreign exchange reserves worth $3.1tn (¥21.8tn). Enough to buy back all offshore yuan deposits ten times over, and still have more reserves than all but eleven countries.

China has enforced strict capital and currency controls over decades to protect its currency from external shocks like an attempted run on the yuan. There may be lots of vulnerabilities in the Chinese financial system, but currency is not one.

The us decoupling itself from China would be an unmitigated disaster for the us as China would align itself with Russia.

Russia has the population of Nigeria and the GDP of Italy.

The cold war ended a while ago. Worrying about them today makes about as much sense as worrying about Autria in 1930 because Austrohungaria used to be a world power.

They have a large nuclear arsenal.

And a large military, are actively involved in cyberwarfare and psychological warfare, hacking US elections, and veto rights on the UN Security Council. Plus a history of getting many countries into its sphere of influence.

It’s foolish to discount them.

Which might not mean as much as you think, thanks to the doctrine of Mutual Assured Destruction (https://en.wikipedia.org/wiki/Mutual_assured_destruction)

That only works as long as you have targets worth destroying. China has a lot. US, fewer... Russia, we do not even know the targets.

They can't use that arsenal to buy Chinese stuff.

> Worrying about them today ...

And yet, still the west endlessly obsesses about Russia, for some reason.

>Worrying about them today makes about as much sense as worrying about Autria in 1930 because Austrohungaria used to be a world power.

And nothing bad came out of Austria in the 1930s.

Well, our Austrian friend had long moved to Germany by 1930.

Firstly, Nigerian population is much larger than Russian (190 vs 146). And secondly, what's wrong with population of Nigeria? It's 60% of population of USA and will probably be equal in 30 years.

> And secondly, what's wrong with population of Nigeria?

I don't think it was a sleight on Nigeria. Just a poetic way to emphasize the weakness of the Russian economy by highlighting the disparity between its population and its GDP. And while the population of Nigeria is is larger it's in the right ballpark for the argument being made. They could have said Pakistan, Bangladesh or Indonesia. Although I suspect those nations have even larger populations but not by an order of magnitude.

Yeah, I didn't mean anything about questioning if it was a sleight etc, just talking about size of population. The comment was talking about Russia being substitution for USA in coupling with China, and that Russia has too low population. So it's actually about comparing size of population of USA and Russia, then Nigeria looked as an example of a country with small population compared to USA. Which is far from true.

I mean they sorta already are? Xi Jinpeng was calling Vladimir Putin his "closest, most dearest friend" just a month or two ago. They already oppose the US (along with Russia) on every major international issue.

> Xi Jinpeng was calling Vladimir Putin his "closest, most dearest friend"

Why would anyone care what state heads say (this includes Trump and his comments about NK)? It means nothing and has no consequence...except maybe preventing fickle market fluctuation. You never hear "I hate this guy" because it's just pablum. Convince me otherwise.

I really don't understand why you would cite that as something meaningful.

I couldn't agree with you more ;-)

Well, it cannot be taken at face value, but it can mean something. It means that there is an understanding by Russian and Chinese heads of state that they could have a common interest in keeping the U.S. from acting as a world despot.

Of course, Russia and China have attempted to unite vs. U.S. interests before, and it always turns out that they have more to disagree/argue about than they have to agree on. But it doesn't mean that it's not worth mentioning.

you are aware that USSR annexed parts of China? Whatever the lang Xi uses they will never be allies.

We are not aware because it didn't happen. Having said that, among Chinese hardcore nationalists there are historic dreams of owning Siberia.

Russia is an irrelevant economic factor in the 21st century. Their export is fossil fuels, and that's about it.

Ice/water will be a major export very soon. Countries will go to war over it.

Nope. Drought is usually local and water shortages are often from the breakdown of regional infrastructure. There are recently discovered truly massive water lakes in the earth's mantle.

https://www.livescience.com/46292-hidden-ocean-locked-in-ear...

Northeast passage in a couple of decades might be a big boom for Russia and China.

They're already aligning with Russia through SCO (https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisat...) and there's already been talk of merging with the CSTO (https://en.wikipedia.org/wiki/Collective_Security_Treaty_Org...) which would be a full on defensive alliance.

China holds only 5% of US federal government debt, down from a peak of 11%. If they stop buying it won't cause interest rates to skyrocket. The impact would be a few basis points at most.

That is presuming private ownership effects won't be big. And they will be. China owns more corporate debt in the US than anywhere else and it is a high percentage.

Not necessarily. If the Chinese yuan is devaluing, Chinese investors want very much to hold US dollar denominated debt.

Yes, and so they would want to hold the federal debt. And also find ways to increase it. The GP post relates to China selling the debt to disentangle from USD.

Luckily there is massive domestic demand for US corporate debt.

> The impact would be a few basis points at most.

After a decade of rock bottom rates, even few basis points will sound big

There is a general theory that the current US administration's foreign policy, from Russia, to North Korea, to Iran, is all primarily geared to checking China. It's a bit tinfoil hat, I admit, but it's not implausible.

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