Master of the Universe Walt Whitman BL

Master of the Universe Walt Whitman BL

TOCAC2.4

Because sanctions on China will lead to American economic collapse, I affirm.

Hufbauer et al. in 07[1] define economic sanctions as

“the deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations. “Customary” does not mean “contractual”; it simply means levels of trade and financial activity that would probably have occurred in the absence of sanctions.”

Moreover, protecting international market stability and the integrity of currency transactions falls under foreign policy objectives. Stephen Cohen[2] writes

National security and domestic economic well-being are goals so highly prized by governments that each has generated a large bureaucracy operating in these two separate realms. Both the foreign policy and the economic policy agencies rightly view international economic policy as part of their jurisdiction because it affects their “constituency.” Economics has become a central component in world politics, and economic strength is widely recognized as having become part of a broader definition of national security. International economic policies are directly related to the foreign policy objective of fostering the type of international environment that is most conducive to the physical and ideological well-being of that nation. At the same time, these policies directly affect the basic objectives of domestic economic policy management: growth, full employment, and price stability.

Since ought indicates moral obligation, the value is morality. Moral rules must be universally applicable; if they apply to an actor in a given circumstance, then they ought rationally apply to all actors similarly situated. Otherwise, principles of right and wrong would not be predictable guides for action. Only a maximizing consequentialism maintains normative consistency, as Philip Pettit[3] proves:

The upshot is that if as a non-consequentialist theorist I straightforwardly universalize the prescription that in a certain situation I should instantiate a favored pattern, P, then the prescription to which I thereby commit myself — that in that situation any [person] X ought to instantiate [the same] pattern, P — may force me to revise my original self-prescription [because]. I have equal reason to prefer both that I instantiate [the pattern] P and that any agent [act.] instantiate P — this reason is expressed by the use of the word ‘right’ or ‘ought’ in each case — and the spirit of [Since] universalisability blocks me from treating myself as in any way special. Thus, if the preferences are inconsistent in a certain situation — if the choice is between my instantiating P alone, for example, or my acting so that many others instantiate P instead — then I will have reason not to instantiate P myself. As a would-be non-consequentialist thinker, [although] my initial claim must have been that the point is to instantiate [the pattern] P in my own life, not promote it generally. But I countenance the general claims of the P-pattern when I universalize in the straightforward way: I prescribe general conformity to that pattern, not just conformity in my own case. Thus it now seems that what I must think is that this general conformity is to be promoted, even if that means not myself instantiating the pattern in my own behavior or psychology or relationships. It seems that [so] what I must embrace, in effect, is a consequentialism in which conformity to [the] pattern P is the ultimate value to be promoted.

Regardless of form, all conceptions of morality seek to alleviate human suffering, so the value criterion is minimizing human suffering, defined as protection from actions and environments that endanger collective well being. This is true for an additional reason. Since people are moral equals, no line on a map or deontological restriction can stand in the way of reduced suffering. Eric Rakowski[4] writes:

On one side, it presses toward the consequentialist view that individuals' status as moral equals requires that the number of people kept alive be maximized. Only in this way, the thought runs, can we give due weight to the fundamental equality of persons; to allow more deaths when we can ensure fewer is to treat some people as less valuable than others. Further, killing some to save others, or letting some die for that purpose, does not entail that those who are killed or left to their fate are being used merely as means to the well-being of others, as would be true if they were slain or left to drown merely to please people who would live anyway. They do, of course, in some cases serve as means. But they do not act merely as means. Those who die are no less ends than those who live. It is because they are also no more ends than others whose lives are in the balance that an impartial decision-maker must choose to save the more numerous group, even if she must kill to do so.

My thesis and sole contention is that American sanctions on Chinese currency manipulation will cause global conflict and economic disaster.

A: America will pass trade sanctions for Chinese currency manipulation to appease political pressures. Wang Yong[5] on April 11th agrees.

As the US mid-term election approaches, the weakening political support for Democratic Party and President Obama is evident. Maintaining a Congressional majority will be a difficult challenge for the Democrats. Scapegoating China is always helpful to domestic politics, as it diverts popular dissatisfaction with the Administration’s economic policies. Taking action on Chinese RMB would please voters who complain about the US’s high unemployment rate. On the other hand, China’s rapid economic rise is a source of public fear. It is politically good timing to ‘take on China’. [Also,] Threatening sanctions [is] on RMB may have been regarded as saving ‘face’ on the recent bilateral diplomatic spats over the US arms sales to Taiwan and Obama’s meeting with the Dalai Lama. The Chinese government views Taiwan and Tibet as the nation’s ‘core interests’ and publicly condemned these moves. In the US, Chinese actions are now interpreted as ‘arrogant’ or ‘tough’, altering the former ‘low profile’ perception of China. Undoubtedly, the confrontation reflects some change in the relative power position between the two countries following the global financial crisis. The assumption can therefore be made that America[‘s way] ns want to teach the Chinese that the US is still the largest power in the world. This could be a game of ‘saving face’ in response to China’s ‘overreactions’ on Taiwan and Tibet.

Also, Congress is poised to pass trade sanctions legislation. Kevin Hall and Nancy Youssef[6] write on April 4th.

But in recent weeks, even the staunchest of free trade advocates have condemned Chinese currency practices as harmful to U.S. jobs. These include C. Fred Bergsten, director of the Peterson Institute for International Economics, who believes China's fixed exchange rate is costing at least 1.5 million U.S. jobs. Pressure was building in Congress for action against China. Sen. Charles Schumer, D-N.Y., is advancing bipartisan legislation to get tough with China. In the House of Representatives, the Ways and Means Committee, which has jurisdiction over trade issues, is now headed by a free trade opponent, Rep. Sander Levin, D-Mich.

B. China will retaliate only if the U.S. imposes sanctions. Reuters[7] March 21:

Beijing will take retaliatory steps if the United States declares China a currency manipulator and imposes trade sanctions, commerce minister Chen Deming said on Sunday, the latest salvo in a spat over the value of the yuan. Chen, speaking at the China Development Forum, again accused Washington of politicising the issue ahead of an April 15 deadline when the US Treasury must decide whether to declare China a currency manipulator. "The currency is a sovereign issue and should not be an issue to be discussed between two countries," Chen said. "We think the renminbi (yuan) is not undervalued, but if the US Treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do nothing. We will also respond if this means litigation under the global legal framework." He did not specify how Beijing might respond. Political pressure is growing in Washington to declare China a currency manipulator, with some US senators threatening to slap duties on Chinese products if Beijing does not allow the yuan to rise.

This retaliation will include dumping reserves. Eswar Prasad[8] explains on March 10th.

Is it a credible threat that China could dump a significant share of its holdings of U.S. Treasuries? Many analysts argue that any threat by China to shift a large portion of its reserves out of U.S. government paper is just bluster as such a move would impose huge costs on China itself. But these costs tend to get overstated in popular discussions of the matter. Let us examine each aspect of these costs. If interest rates in the U.S. spiked as a consequence Chinese actions, there would be a capital loss to China on the value of its Treasury bond holdings. This is correct on a mark-to-market basis, but [First,] it is likely that China has a hold-to-maturity approach on its bond portfolio, given that it has such a large stock of reserves and has no immediate liquidity needs. Hence, the actual capital loss may not be significant enough to feature in the political calculus. A plunge in the value of the dollar against other major currencies would reduce the domestic currency (renminbi) value of China’s dollar-denominated holdings. This is indeed accurate. But only if the renminbi appreciated relative to the dollar. Otherwise, [Second,] China would lose a modest amount on the value of its euro and yen holdings and this would be more than made up for by the benefits of higher trade competitiveness if the renminbi rode down with the dollar against other major currencies. Currency appreciation would lead to a big loss on reserve holdings in local currency terms. If the renminbi appreciated substantially relative to the dollar, as economists believe it eventually must given the much higher productivity growth in China relative to the U.S., China would certainly take a capital loss. But this is likely to be at least partially offset by seigniorage revenue that China can get as it moves forward in tandem on exchange rate flexibility and capital account liberalization. [Third,] By preparing the ground for the internationalization of the renminbi, China stands to gain some of the benefits that accrue to an international reserve currency, although this might happen only over a period of a decade or so. China is already taking measures to foster the adoption of the renminbi in trade and financial transactions in Asia. In short, any Chinese threat to move aggressively out of Treasuries is a reasonably credible threat as the short-term costs to the Chinese of such an action are not likely to be large. But can China make a big difference to U.S. interest rates given that its share of the financing of the U.S. budget deficit has fallen over time? The answer lies not in the absolute amounts of financing that China brings to the table, but in how its actions could serve as a trigger around which nervous market sentiments could coalesce. Given that there are no clear prospects of reining in exploding deficits and debt in the U.S., especially if one factors in rising health care and entitlement costs, changes in availability of deficit financing at the margin can have potentially large consequences.

C. If China dumps its reserves, the US economy will collapse. Asian Times Online[9] 06:

One of the pillars propping up US superpower status and worldwide economic dominance is the dollar being accepted as the predominant reserve currency. Central banks of various countries have to stock up dollar reserves because they can only buy their oil requirements and other major commodities in US dollars. This US economic strength, however, is a double-edged sword and can turn out to be America's economic Achilles' heel. A run of the US dollar, for instance, which would cause a dollar free-fall, can bring the entire US economy toppling down. What is frightening for the US is the fact that China, Russia and Iran possess[es] the power to cause a run on the US dollar and force its collapse. China is now the biggest holder of foreign exchange reserves in the world, accumulating $941 billion as of June 30 and expected to exceed a trillion dollars by the end of 2006 - a first in world history. A decision by China to shift a major portion of its reserve to the euro or the yen or gold could trigger other central banks to follow suit. Nobody would want to be left behind holding a bagfull of dollars rapidly turning worthless. The herd psychology would be very difficult to control in this case because national economic survival would be at stake. This global herd psychology motivated by the survival instinct will be strongly reinforced by the latent anger of many countries in the Middle East, Eurasia, Southeast Asia, Africa and Latin America that silently abhor the pugnacious arrogance displayed by the lone Superpower in the exercise of its unilateral and militaristic foreign policies. They will just be too happy to dump the dollar and watch the lone Superpower squirm and collapse. The danger of the dollar collapsing is reinforced by the mounting US current account deficit, which sky-rocketed to $900 billion at an annual rate in the fourth quarter of 2005. This figure is 7% of US gross domestic product (GDP), the largest in US history. The current account deficit reflects the imbalance of US imports to its exports. The large imbalance shows that the US economy is losing its competitiveness, with US jobs and incomes suffering as a result. These record deficits in external trade and current accounts mean that the US has to borrow from foreign lenders (mostly Japan and China) $900 billion annually or nearly $2.5 billion every single day to finance the gap between payments and receipts from the rest of the world. In financial year 2005, $352 billion was spent on interest payment of national debt alone - a national debt that has ballooned to $8.5 trillion as of August 24. The International Monetary Fund has warned: "The US is on course to increase its net external liabilities to around 40% of its GDP within the next few years - an unprecedented level of external debt for a large industrial country." The picture of the US federal budget deficit is equally grim. Dennis Cauchon, writing for USA Today said: The federal government keeps two sets of books. The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005. The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If social security and medicare were included - as the board that sets accounting rules is considering - the federal deficit would have been $3.5 trillion. Congress has written its own accounting rules - which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel. Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household ... The audited financial statement - prepared by the Treasury Department - reveals a federal government in far worse financial shape than official budget reports indicate, a USA Today analysis found. The government has run a deficit of $2.9 trillion since 1997, according to the audited number. The official deficit since then is just $729 billion. The difference is equal to an entire year's worth of federal spending. The huge US current account and trade deficits, the mounting external debt and the ever-increasing federal budget deficits are clear signs of an economy on the edge. They have dragged the dollar to the brink of the precipice. Such a state of economic affairs cannot be sustained for long, and the stability of the dollar is put in grave danger. One push and the dollar will plunge into free-fall. And that push can come from China, Russia or Iran, whom superpower America has been pushing and bullying all along.