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Four Graphs that Will Make You Boiling Mad About the Trans Pacific Partnership–Or Why President Obama, along with executives from Nike, Microsoft, Apple and other US corporations Steadfastly Support China’s Currency Manipulations

income inequality

Originally published May 19, 2015 by John Hively

When China manipulates its currency vis-a-vis the US dollar it increases the profits of US job exporters that produce stuff in China and exports that cheap stuff to the USA.

That’s most likely why President Obama said he will veto any congressional legislation that seeks to stop the Chinese government from manipulating its currency.

Why do President Obama and executives of US based multinational corporations, like Nike, want the Chinese government to manipulate its currency? And what does this have to do with the Trans Pacific Partnership and Fast Track Authority?

The answer to one of these questions is simple: the TPP will force China to manipulate its currency even more than is currently the case.

Take a look at the graph below. On the left side is the Yuan, which is the Chinese currency. On the bottom line is the dollar. Now look at the two intersecting lines, which is the supply and demand for dollars. In this example, 600 yuan can purchase $100 in the currency markets, which is roughly what the two currencies currently exchange for.

So when Nike, Microsoft or Apple Inc. manufacture a product in China that costs the consumers, say, 600 yuan in China, given the exchange rate, the same product will cost $100 in the United States, after, of course, it is exported from China to the USA. Assume these US corporations have a 25% profit margin. That means these companies get 150 Y profits in China per product, and $25 profit when they export their products to the United States.

The same is true for companies that manufacture products in the USA, and then export them to China. American manufacturing companies earn $25 per $100 of product sold in the USA, and 150 Y when their products are exported from the USA to China.

The government of China has been accused of manipulating the value of its currency. So what happens when it does this? It purchases dollars. This shifts the D1 line to the left, because there are less dollars on the market, which is shown in the graph below as line D2. This makes the Yuan less expensive in terms of dollars.

Why would President Obama encourage the Chinese government to manipulate its currency by threatening to veto US legislation aimed at stopping it? Why would Wall Street Senator Ron Wyden only pay lip service to the evil of Chinese currency manipulation, while apparently supporting it? Why are the higher up folks at Nike, Microsoft, Apple and every US corporation that is producing goods in China for export to the United States against any legislation that seeks to address Chinese currency manipulation? There is a very good reason they’re all for this.

Look at the example in the next graph below. When the Chinese government manipulates it’s currency by purchasing dollars, 800 Y will now purchase $75. Do the math; 600 Y will purchase now $56. What does that mean?

It means that when Nike manufactures a pair of shoes in China which costs 600 Y there, in the US it should cost $56 rather than $100, thanks to China’s currency manipulation, but that rarely happens. The US corporate propaganda machine will lie to you and tell you it makes Chinese imports less expensive. However, the truth is that China’s  manipulation increases the profits of Nike.

Nike still gets 25%, or 150 Y, in profits when its shoes are sold in China. When it exports the same shoes to the USA from China, Nike still gets 25% profit on $56, which is $14 dollars. However, Nike still sells it’s shoes for $100 in the United States, which means another $44 in earnings per pair, in addition to the $14.

That means Nike’s profit margin on a $100 pair of shoes goes from 25% at the old exchange rate to 58% at the new exchange rate. This sends its earnings and stock prices higher. The same thing occurs with Microsoft, Dell, Hewlett-Packard, Apple, and every US corporation manufacturing in China, that are exporting their products to the United States.

So who pays the price for this?

You do; if you work for a living in the United States, or if you’re a  small or medium size business owner. Here’s how. Suppose you are a US manufacturer producing shoes in Oregon that sell in the USA for $100. You ship them to China at 600 Y for $100, and earn 150 Y, or $25, in profits. Now suppose the Chinese government, with the encouragement of your corrupt government and many US business leaders, manipulates its currency by purchasing tens of billions upon tens of billions of dollars. The supply of dollars on the international currency markets shrinks, making dollars more expensive, and as noted above, the D1 line shifts to D2, which represents the new supply of money. BTW, the space between D1 and D2 represents the amount of dollars the Chinese purchased.

Those $100 US made shoes now costs 1000 Y in China. Okay, my graph isn’t too high tech, but the actual figure is 1066 Y, if you do the math, but let’s stick with the 1000 Y, for simplicity sake. There’s still a 25% profit margin per pair of shoes, but at the 1000 Y price, there’s not a whole lot of buyers in China. The US manufacturer could lower the price of the shoes to 750 Y, but he or she isn’t making a penny at that price, and they’re still overpriced for the Chinese market. Say goodbye to the Chinese market for all US products at the new exchange rate.

US exports to China are going to shrink quite rapidly under this scenario. This means fewer American jobs, and less wages for everyone. It means less tax dollars going to schools and other government services, it means no retirement pay for a larger percentage of the 99 percent. Rich folks don’t need the money they’re going to steal from us, except to keep the latest stock market bubble surging, at least until it pops. However, greater profits mean the bubble can keep expanding for a while longer.

So how can US corporate leaders and their corrupt politicians encourage the Chinese government to manipulate its currency even more than it already has?

The scams that have been created to do this are called the Trans Pacific Partnership and Fast Track Authority. So what do these two things have to do with Chinese currency manipulation? More importantly, why would the Chinese

government want to engage in currency manipulation?

The answer in one word; Vietnam.

Vietnam is one of the nation’s involved in negotiating the Trans Pacific Partnership. As you can see from the graph below, China’s annual minimum wage is nearly twice that of Vietnam. The wages in China at those Nike and Microsoft and Apple and Hewlett-Packard factories and their suppliers and contractors and subcontractors have been going up rapidly over the past fifteen years. Those labor costs have been able to go up because the Chinese government has increased the profit margins of its US manufacturers by manipulating its currency. But there’s another reason why China needs to manipulate its currency vis-a-vis the dollar.

As you can see from the map below, there are nearly 313,000 Nike workers toiling in Vietnam, and nearly 250,00 in China. Vietnam clearly has lower labor costs than those in China. The Chinese government, however, can offset its labor cost disadvantage by manipulating its currency. So it can keep those jobs in China, and still allow the wages of Chinese workers to expand. But that might not be the case should the Trans Pacific Partnership (TPP) become a reality.

Tariff is another word for tax. When a US company like Nike manufactures its products in Vietnam, and then exports them to the US, a tariff is charged against the products of between 10 and 15 percent. So another $10 to $15 dollars is added to the cost of a $100 pair of Nike’s Vietnamese made shoes exported to the USA. That means less profits, lower dividends, and lower share prices than would otherwise be the case without tariffs. The US tariffs on US corporate goods manufactured in Vietnamese factories helps to offset some of the Vietnamese labor cost advantages vis-a-vis the cost of Chinese labor.

Under the TPP, should it become law, those tariffs will likely be gone, giving Vietnam a much larger labor cost advantage over Chinese workers.

In which case, the Chinese government will have two options; let millions of Nike and Dell and Apple and Microsoft jobs head south to Vietnam, along with the jobs of contractors and subcontractors, or manipulate its currency even more, which means all of those US corporations manufacturing stuff in China for export to the US will see unprecedented and explosive growth of their profits; and all of this will occur at the expense of small and medium sized US companies that make stuff in the United States and export them to China.

That means several unpleasant things will occur to the US economy: US unemployment will grow with the TPP, as exports to China diminish, inequality in wealth and income will continue to increase during the reign of Obama and Wyden, the stock market bubble will continue to expand, the coming stock market crash will be even worse than imaginable, US businesses will need to export more US jobs to China, and all of these bad things will trickle down to more crowded classrooms, less government services, reduced wages, fewer jobs, more poverty, and much more negative stuff for the 99 percent. However, the super rich will become even more super rich. And Chinese currency manipulation will not be the only thing in the TPP contributing to all of these things. See https://johnhively.wordpress.com/2015/04/21/how-the-trans-pacific-partnership-will-destroy-american-jobs-by-destroying-us-exports/

The political game in the US over the TPP and Fast Track Authority currently being played out is a complete farce.

Start with Fast Track Authority, which President Obama, Nike, Microsoft, Ron Wyden, Orrin Hatch, Mitch McConnell and just about every major US corporate CEO and investor desperately want Obama to have. Fast track will limit congressional debate on trade deals, it will scuttle any possible congressional amendments, and eliminate the use of the filibuster in the senate to stop the TPP. Fast track needs to pass through both houses of congress.

As a condition for bringing Fast Track Authority to a debate on the floor of the US senate, on May 13, a number of Democrats who traditionally vote to redistribute income from the 99 to the 1 percent (Ron Wyden, Harry Reid, Patty Murray, Heidi Heitkamp, Bill Nelson, Tim Kaine, Claire McCaskell, and Ben Cardin) agreed to first bring a vote for a bill by which the US will crackdown somehow on China for manipulating currency.

These folks know such a bill may not pass the senate, much less the house of representatives. If it did pass, then it will sit on Obama’s desk until Fast Track Authority passes both chambers of congress. Then he will veto the currency manipulation bill. There’s a ton of income to be redistributed from the 99 to the 1 percent resting on his shoulders.

Then the above senators will pretend to the folks back home that they did all that they could, when in fact, they did nothing when they could have done something to protect the folks back home from the TPP.

Every US senator and every US house representative knows this is the game, and many are willing to play this deadly game so as to justify their support for giving President Obama Fast Track Authority, even though the TPP will likely rip out the guts of the middle class, as well as the US economy.

If the above named Democrats were at all serious about Chinese currency manipulation, then they would agree to wait until Wall Street President Barack Obama signed the bill into law before opening debate on fast track authority.  That won’t happen.

Fast Track Authority is the only way the president can ram the TPP through congress. It’s an income and political power redistribution agreement falsely marketed as a trade agreement. Most of those in the know say the TPP is dead if the president doesn’t receive fast track authority. So fast track is the key.

Save the United States. Fight against this madness called Fast Track Authority. The TPP will only create greater trade deficits in the future than is currently the case. As US Congressman Alan Grayson famously and recently said, “You will find that the largest fourteen trade deficits in the history of the world have been the US trade deficits in each of the last fourteen years….What sane person can look at these trade deficits and conclude we need more free trade?”

The political fight over the Trans Pacific Partnership, Fast Track Authority, and Chinese currency manipulation isn’t about sanity; it’s about greed and government corruption. It’s about raising the already soaring share prices, dividends and earnings of US corporations that have exported millions of US jobs to China and other third world nations, and doing so at the expense of everybody else. It’s about redistributing your standard of living to a small minority of overly rich people who have corrupted and rigged your government in favor of themselves. It’s about redistributing your income and wealth to the 1 percent so as to keep the current stock market bubble expanding. It’s about redistributing the American dream to the 1 percent. It’s about taking the opportunities that once existed for the majority of American citizens and wiping them out by giving 100 percent of all income growth to the 1 percent, and leaving more and more people in poverty.

Currently, the 1 percent steal 37 percent of all income produced in the United States compared to 8 percent in 1980, back when opportunities for financial advancement existed for most Americans. Now the big boys, and the politicians they’ve bought off in one way or the other, want to eliminate your opportunities, as well as those of your children.

Call your senators. Call your congressmen and congresswomen. Stop Fast Track in the senate. Stop the corruption. Stop the insanity.

Over the past fourteen years, since China was granted most favored nation trade status, Nike’s stock price has risen over a thousand percent, from $10 a share to over a $100. Chinese currency manipulation has helped fuel this bubble. So if you purchased a million shares of Nike in the year 2000, today the value of those shares would be over $10 million. With the TPP and Chinese currency manipulation, the value of Nike’s stock will continue to increase, but only at the expense of everybody else. Much of the US stock market bubble is fueled by the same force, and that goes for the stock prices of Apple, Microsoft, Dell, Adidas, Hewlett-Packard and more. And if the TPP goes through, more US manufacturers will need to shift production to China.

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Why do Nike executives want the US congress to pass the Trans Pacific Partnership?

The answer is simple, they want to offshore more jobs, which the corporation will be able to do once the TPP becomes law. But first let me explain a few things.

The folks at Nike declared that the notorious jobs exporter would create 10,000 new manufacturing jobs in the US if the Trans Pacific Partnership (TPP) is passed by congress. President Obama repeated this lie when he gave a speech at Nike headquarters on May 8. I should point out that 10,000 jobs represents less than 1 percent of Nike’s total manufacturing labor force. So it’s a drop in the bucket.

So how is it that the president is willing to share information from his top secret trade negotiations with Nike executives, but not with the rest of us?

This willingness to create jobs in the United States defies both logic and Nike’s history.

Nike is one of the top jobs exporters in all of US history, if not number one of all time. And the defining issue for Nike in the TPP, that we know of via leaked documents, is the desire of Nike executives to reduce or eliminate the tariff on Nike products the company exports to the United States from Vietnam, which swells the US trade deficit, and ask anybody, the latter is a bad thing.

If the TPP becomes law, we can count on tens of thousands of Nike jobs to be relocated from China to Vietnam because the wages in Vietnam are much lower than in China. This will increase Nike’s profits and stock price. Take a look at the history of Nike’s stock price below.

Nike’s stock price was barely over $4 a share in November 1994, just before the implementation of NAFTA in December 1994. It more than doubled between 1994 and 2000, because the company was able to export more jobs. Then China was given most favored nation status. The price of Nike stock has jumped more than a thousand percent since then because the company was able to export even more jobs. If you owned 1000 shares of Nike in 1994, your stock was worth $4000. Now it would be worth $100,000, and that doesn’t even count the yearly dividend payment.

Nike’s stock growth was a result of exporting jobs. When a job is exported from the US, the difference between the old higher US wage and the new lower Vietnam wage increases profits, which drives stock prices and dividends higher, but leaves everybody else in poverty.

So it’s more than likely that Nike will not shift production to the United States with or without the Trans Pacific Partnership. This suggests that people should rightly be suspicious of the dubious claim by Nike executives that they will create 10,000 US manufacturing jobs in the US if only the TPP passes through congress. Nike could do it right now. And the lowering of US tariffs on imports from Vietnam via the TPP gives Nike absolutely no incentive to create production jobs in the US. Rather, it gives Nike incentives to export the few production jobs in the US and the hundreds of thousands in China to Vietnam.

On the other hand, these executives want the TPP in the worst sort of way, which suggests they have had the privilege of seeing the text of the TPP, a right which is being denied to the rest of us.

So what is the president and his chief Wall Street henchman in the senate (Ron Wyden) hiding?

We know from leaked documents that the TPP will:

* TPP will give incentives for US corporations to export millions of US jobs. The Federal Reserve estimates that 28 million US jobs were exported between 1990 and 2010. Wyden wants to increase this number. Jobs are the biggest US export product. Wyden likes this.

* TPP will increase US income and wealth inequality. The 1 percent have already taken 95 percent of all income growth in the United States since 2009. Currently, the 1 percent are stealing 36+ percent of all income produced in the USA, compared to only 8 percent in 1980. International trade scams and other federal legislation have brought inequality about. For example, when the above jobs were exported, the difference between the old higher US wages and the new lower wages will go straight into the pockets of the 1 percent via higher corporate profits, rising dividends and surging share prices. Wyden is a principle architect of this inequality.

* Those lost jobs will no longer be paying the taxes for our infrastructure, K-12 education, higher education (tuition and fees will go up), social safety nets, schools, fire, police, public transportation, social security taxes, but those lost jobs will push the stock markets higher.

* TPP will effectively eliminate your voting rights on local and state issues since it will unconstitutionally grant investors of the 0.01 percent special privileges to challenge labeling and health and safety local laws and regulations of the 99 percent, which most people call voter suppression, but in this case it should be called voter elimination.

* TPP will eliminate millions of jobs in Latin America, which will drive millions of more people illegally into the United States and depress wages here. See How the Trans Pacific Partnership Will Destroy American Jobs and Exports

* TPP will jack up pharmaceutical prices by extending the patents of the pharmaceutical corporations. Hmm, that doesn’t sound like free trade. It sounds like they’re rigging the game against the 99 percent.

These things we know only from leaked documents, and they’re only a tiny bit of what’s been negotiated. It doesn’t seem like the stuff we don’t know about in the TPP is going to be very good for the majority of citizens, otherwise, the president would let us know what is in the TPP, which is precisely what the president doesn’t want us to know. If the TPP is so good for the majority of American citizens, as the president claims, then why don’t the rich folks want us to know what’s in it?

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The above is as true as can be, otherwise, why would Wall Street Democratic Senator Ron Wyden be on the same side as Wall Street Republican Senators Orrin Hatch and Mitch McConnell when it comes to the Trans-Pacific Partnership? Why are Wall Street Democratic President Barack Obama on the same side as Wall Street Congressman Paul Ryan when it comes to the Trans-Pacific Partnership? Why are former Wall Street Senator Hilliary Clinton on the same side as Wall Street Republican Senator Marco Rubio? Wall Street investment banks, and several billionaires, own all of these politicians and more. The Trans-Pacific Partnership is a massive scam that will redistribute even more income and political power from the 99 to the 1 percent, even though the 1 percent now steal 37 percent of all income produced in the United States, up from 8 percent in 1980. So who do all of these Democrats and Republicans work for? Oh, that’s right: Wall Street.

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The wealthy CEO’s and shareholders of Monsanto are transforming your health into record profits for the 1 percent. Your ill health is now a for profit commodity. And the government of the United States is a well bought partner in this scam.

President Obama and Wall Street Senator’s Ron Wyden, Mitch McConnell, Orrin Hatch and most everybody else in the US Senate that is a Republican want to continue to transform your good health into Monsanto profits via the Trans-Pacific Partnership, the largest “international income, political and health of the 99 percent redistribution to the 1 percent agreement” of all time.

One of the leaked provisions of this scam is to eliminate your voting rights on the state and local levels when it comes health, safety and labeling issues. Monsanto is a key adviser to the negotiators. The question really is, why is the US government so corrupt that dozens of senators support this scam?

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