China's WTO Entry Sparks Global Currency War

China's entry into the World Trade Organization (WTO) in 2000 was touted as a benefit for American businesses, but it has proven to be a disaster for the country's middle class. President Bill Clinton promised Americans that China's accession would allow them to sell products made in America without being forced to relocate manufacturing or transfer technology.

However, history has shown that this promise was not kept. China is now the world's dominant manufacturer and exporter, with its factories exporting over $3.7 trillion worth of goods last year and generating a record-breaking trade surplus of $1.2 trillion. Meanwhile, China's middle class has grown from non-existent to more than three-quarters of its population.

So how does China maintain this trading edge? Ford CEO Mark Fields once said that 'the mother of all trade barriers' is currency manipulation. He pointed out that China suppresses its currency against the U.S. dollar, giving it an unfair export advantage. This has sparked a race to the bottom, with even close allies like Canada and Japan engaging in underhanded forms of currency manipulation.

The Chinese renminbi is undervalued by 20-30% against the dollar, while the Canadian dollar and Euro are undervalued by up to 20%. The Japanese yen is undervalued by 40-45%, leading to artificially low interest rates that deter investment in their own bonds. Instead, they buy massive amounts of U.S. debt, driving up its value and weakening their national currencies.

China's currency manipulation has also led to a massive increase in foreign holdings among these countries. Canada's net overseas holdings have grown by more than 900% since China's WTO accession, while Germany's have increased by over 800%. Japan holds $1.2 trillion in U.S. debt, making it the largest single creditor to Washington.

The root of the problem lies in Beijing and in America's inability or unwillingness to confront China. Our government must decide whether its primary responsibility is to protect average Americans or to enrich political donors. If we are going to confront the problem directly, we must be prepared to hold China accountable through the use of tariffs and currency devaluation.