Tariff bill as nuclear weapon (#112, Topic F)

Now that the distinguished 3-member senate "fact-finding" mission has come back from China, the self-styled "hometown boy" in the delegation (#111) has become even more belligerent. After all, before the mission, none of the 3-member delegation has ever been in China; the "China threat" was more theory than reality. Now that they have seen China first-hand, having witnessed her vitality, being stronger than their worst dreams, it is apparent that the use of stronger language is called for. So, in an appearance before CNBC this morning, our hometown boy unapologetically referred to his threat to impose a 27.5% tax on Chinese imports as his "nuclear weapon." Bravo. Of course, he realized that it was but an empty threat -- the business community was not behind such a move; indeed, the CEO of Caterpillar, which has a strong presence in China, warned of a "worldwide recession" should the threatened tax bill become law. Thus, our hometown boy wisely tampered his threat with another statement, suggesting that he was delaying this move. The Wall Street greeted his more temperate statement by bidding up share prices, though the trend was reversed at 2:15 pm, when the Fed announced a 1/4 point interest-rate increase and further warned of additional increases to come -- to 5% or even higher. Actually, the handwriting has been on the wall: the new Fed chairman, Ben Bernanke, in an address last weekend before the New York Economic Club, explained the low rates as "a gift of the global savings glut." Now that Japan's central bank no longer charges 0 interest rate, the "yen carry trade" is history. The ever higher gold and silver prices suggest that China may be shifting her investment portfolio from the low-yielding US bonds to precious metals or other currencies. Improving the yield by increasing the interest rate seems a good, though unstated, reason of enticing China and other countries to continue buying US bonds.
Posted at 11:53 pm, Tuesday, March 28, 2006