The day was fading as the last light dance along the horizon, casting a warm glow over the bustling port. Container ships loomed around towering cranes, while the flickering refinery flares punctuated the approach of night.
As the sun sank behind the Palos Verdes cliffs, we gathered around a massive bonfire and felt the allure of its dancing flames. The kindling crackled and popped, sending shimmering embers soaring on the evening breeze.
With school starting again tomorrow, the children we camped with last Saturday night at Cabrillo Beach Youth Center had other things on their minds. Whittling driftwood, practicing bowline knots, and kayaking the breakwater captured their attention far more than thoughts of the classroom.
Our vantage point at Cabrillo Beach in San Pedro offered a moment of reflection. Looking towards the Port of Los Angeles and the Port of Long Beach, we witnessed a ballet of managed chaos—container ships, docks, cranes, semi-trucks, and railcars intertwined in a seamless operation. Each shipping container likely brimmed with affordable goods from the Far East, destined for American consumers.
To truly grasp the scale of international trade, one need only gaze upon Terminal Island. Currently, the stakes for the global economy are exceptionally high, and China’s leadership is resolute in maintaining the flow of commerce.
Currency Conundrums
Not long ago, China devalued the yuan by 2 percent, sending shockwaves through world markets. The intention behind this move was to make Chinese exports more affordable for consumers in the United States and Europe, although the central bankers would prefer not to admit this.
July saw an 8.3 percent decline in Chinese exports, a significant drop that caught the attention of Beijing’s leaders. While making adjustments to the currency’s exchange rate might provide a temporary boost to exports, it also introduces heightened economic distortions.
While we were engrossed in our weekend activities at Cabrillo Beach, Chinese officials addressed their recent currency adjustments through state news outlets. A summary, as reported by CNBC, outlines their stance:
“On Saturday, China defended the recent changes to its foreign exchange policies that led to a sharp devaluation of the yuan, labeling it a ‘normal adjustment’. An unnamed spokesperson from the Commerce Ministry cited that the devaluation would have a ‘limited impact’ on foreign trade.”
“This devaluation aimed to address a ‘relatively large deviation’ between the yuan’s market rate and the daily midpoint set by the central bank. The ministry emphasized that a nation’s exchange rate depends on its global competitiveness, and that China’s economic reforms will help ensure the yuan remains ‘basically stable’ within ‘reasonable’ and ‘balanced’ parameters.”
The Chinese Fiasco
At the Economic Prism, we sometimes find ourselves puzzled. We are not alone in this; CNBC shares our bewilderment. As they noted,
“These statements follow a series of remarks from state media aimed at defending China’s economic policy decisions, reflecting Beijing’s sensitivity to perceptions that its strategies have faltered. China has framed the yuan devaluation as a free-market reform and rebuffed claims of initiating a wave of competitive currency devaluations aimed at aiding exporters.”
However, the disparity between how China describes the reasons for the devaluation and the actual motivations suggests a different reality. While officials may assert that foreign trade is not a primary concern, the truth points firmly in the opposite direction.
The illusion among China’s central planners is that they can shape their economy with the same ease as carving a piece of driftwood. They believe a few strategic cuts can sculpt it into their desired form.
Yet, contrary to wood, an economy is a complex, adaptive system. Each decision has repercussions, and every adjustment leads to unforeseen consequences. What starts as a simple craft may instead result in chaos, leaving the planners to contend with a situation of their own making.
In the United States, the central planners are not to be outdone by their Chinese counterparts. Over on this side of the Pacific, they too are busy orchestrating a fiasco of their own.
Sincerely,
MN Gordon
for Economic Prism
