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Chinese Government and Obama are Playing Chicken
Howard Richman, 2/6/2010

In the game of chicken two cars barrel down a road headed toward each other. The game ends when one or the other veers off, or they crash. Well, right now, Obama and the Chinese government are playing chicken, and which one wins will determine the future of the American economy and his presidency.

On February 5, the Chinese government initiated the game when it announced plans to slap tariffs of 43.1%-105.4% on American chicken parts, This move follows its rejection of Obama's initiative to seek greater Chinese purchases of U.S. exports at Obama's face-to-face meeting with Chinese President Hu on November 17. The United States needs rapidly increased exports to China's rapidly growing market in order to come roaring out of this recession.

But the Chinese practice mercantilism, the strategy of maximizing exports while minimizing imports, and they think that they have the measure of this president. I hope that they have misread him. Perhaps he likes to be a nice guy, but has steel in him once his outstretched hand is spat upon.

During the first three quarters of 2009, China sold about $219 billion worth of goods and services to the United States while only purchasing $61 billion from the United States. Obama could force them to buy more American exports by threatening to limit our imports from China under the special WTO for trade deficit countries which states:

(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.

When two cars play chicken, the winner is either the driver that has the most nerve or the car that would be least damaged. With the dollar strengthening in currency markets and consumer goods imports dragging down our economy, we are in a much better position than China right now to survive a head-on trade crash. The question is, does our diver have nerve?




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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]