BUSH WILL NOT ACT ON CHINA'S UNDERVALUED YUAN

Bush has effectively tied his hands with respect to China’s unwillingness to "float" its currency with the U.S. dollar.

Bush's inability to get us out of Iraq in a timely manner has left the United States in a position in which it can't deal economically with China to resolve this issue; for the reason that this might facilitate another unwelcome military situation in Taiwan.

The United States must first resolve the situation in Iraq before any economic sanctions can seriously be contemplated. This is one reason why the United States has little political clout at the moment.

I would argue, specifically, that Bush has made such a blunder with Iraq that he can’t do anything that might make China more inclined to force Taiwan to formally rejoin China. Therefore, in order to placate China regarding Taiwan, the United States effectively “subsidizes” China’s economy by permitting the existence of an extremely undervalued Yuan.

Both countries know that if China “acts” on Taiwan that significant sanctions (and potentially more) from the United States would follow. On the other hand, if sanctions are imposed now, there is one less reason for China to put off blocking Taiwan's independence; by forcing its unification.

In the end, Bush really can't do anything to get China to float its currency from its current “fixed” inexpensive level; and the leaders of both countries know it. The current exchange rate makes Chinese goods inexpensive to U.S. consumers; and makes our goods expensive to Chinese consumers. This too drives manufacturing to China; and, of course, enhances our trade deficit. But it keeps Taiwan off the table for now.