Unemployment in the United States stands at 9.6 percent -- the highest rate since 1983. Republicans blame President Obama for the soaring deficits that, they say, are drawing the economy toward ruin. Democrats blame former President George W. Bush, during whose administration huge deficits paid for his tax cuts as well as the wars in Afghanistan and Iraq.

I see another villain seldom accorded the blame it deserves: China.

It's hard to avoid news right now about China's undervalued currency and the coming "currency war," as the Brazilian finance minister recently put it. But for most people, this seems like an arcane technical issue, the province of bankers and trade officials -- far removed from their lives. Not so.

The Chinese government, not the free market, sets the value of the nation's currency, the yuan. It's variously estimated to be worth 20 percent to 40 percent more than the government-set rate. Let's say, for argument's sake, it's undervalued by 30 percent.

Now imagine you need to buy a new stove. If one store offers all of its stoves at 30 percent less than the others, wouldn't you be more likely buy your stove there? That's the problem. China sells its products at unusually low prices because when you use dollars, say, to buy products in yuan, the currency is worth so little that the products are effectively heavily discounted.

For China, conversely, buying foreign products is prohibitively expensive because the currency used to buy those products is so undervalued.

What does all that have to do with the unemployment rate? Just imagine how many new jobs would be created if the Chinese currency were adjusted upward to its actual value and, as a result, China, the world's most populous nation, could afford to buy more American goods.

As it is, the International Monetary Fund says the world's major economies are growing at an average rate of 2.7 percent this year. But the fund says China's growth rate is 10.5 percent -- the highest among major nations, in large part because if China's currency imbalance.

That's why President Obama and Treasury Secretary Timothy Geithner, among others, are so exercised about the Chinese currency problem. That's why the House of Representatives passed a bill late last month that would levy sharp tariffs on Chinese goods if the nation doesn't raise the yuan's value.

The possibility of a currency war dominated the IMF meeting in Washington last weekend. Despite heated discussion, nothing significant was done.

The Chinese government insists it cannot adjust its currency. Wen Jiabao, the Chinese premier, speaking in New York during the United Nations General Assembly last month, asserted: "There is no basis for drastic revaluation of the yuan, and a 20 to 30 percent rise would cause the bankruptcy of numerous enterprises and severe unemployment," adding that "China would suffer major social upheaval."

And there lies the true explanation for China's dangerously selfish behavior. A Chinese government mantra is the goal of building "a harmonious society." For China, that means a society where everyone is employed. As several Chinese commentators have noted recently, Chinese who are able to earn a comfortable living for themselves and their families rarely challenge authority.

Mindful of that, economic development is the Chinese dictatorship's single-minded goal. That's one reason it doesn't seem particularly concerned when its companies export toxic wallboard, deadly cat food, poisoned medicines and so many other defective products. An export is an export. For the leadership, nothing is more important than keeping the populace fed and content.

Last spring, China promised to allow the yuan's value to rise "gradually." Well, in the months since, it has risen by just under 2 percent. China made the same promise to former President Bush, but then made barely noticeable changes.

So what's to be done? You can't expect American companies to boycott China. They are responsible to shareholders and customers to remain competitive, and unless every company stopped buying from China at once, those that did would be at a competitive disadvantage.

Only if Beijing knew that the developed world was united in demanding change, or China would face collective penalties, would there be any chance Chinese leaders would listen.

But the major nations squandered one opportunity for that during the IMF meeting last weekend. Now every country is looking out only for itself. Brazil, Japan, South Korea and some others are beginning to lower the value of their own currencies. The U.S. is also letting the dollar drift downward. What lies ahead, most likely, is economic chaos.

 

Joel Brinkley, a professor of journalism at Stanford University, is a Pulitzer Prize-winning former foreign correspondent for the New York Times

 

Available at Amazon.com:

The End of the Free Market: Who Wins the War Between States and Corporations?

Running Out of Water: The Looming Crisis and Solutions to Conserve Our Most Precious Resource

Bottled and Sold: The Story Behind Our Obsession with Bottled Water

Water: The Epic Struggle for Wealth, Power, and Civilization

The Great Gamble

At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes

 

 

(C) 2010 Joel Brinkley