A tale of two visits...to China

April 1, 2006

Last week Russian President Vladimir Putin visited China to talk about building a natural gas pipeline, and selling oil to China. That same week, Senators Charles Schumer and Lindsey Graham visited China, threatening 27% tariffs if it didn’t take dramatic action to raise the value of the yuan, whose low value against the dollar alows Chinese companies to unfairly compete against American companies.

What It Means:
Several things also happened in March, which will put these events in context:

• Unlike President Putin, President Bush has never visited China. When he did visit the Far East, he criticized China for not allowing their people to read the Bible.
  
• The yuan is low against the dollar because China’s people are net savers, and this excess capital is invested in U.S. Treasuries. This keeps the dollar strong relative to the  yuan.
  
• The U.S., on the other hand, is running the largest budget and trade deficit ever - Congress recently raised the limit on the budget deficit to allow us to keep borrowing more money...from China.
  

Bottom line...while Russia is working to trade with China, and treat it as an ally, the U.S. threatens our largest lender with tariffs that will ultimately raise prices for U.S. consumers.

Action Steps:
Join the bandwagon and invest in the Far East, as a hedge against a declining dollar, and apparently uninformed U.S. Legislators.