American Policy Threatens Dollar Stability - Again

Monday, September 14, 2009

A trade war is brewing between the world’s largest debtor and the world’s largest lender – and the ramifications could prove very costly. Over the weekend, in a very quiet and contrite manner, the US government imposed a 35% additional tariff on Chinese made automobile tires.

The Chinese, since finding this out via a news source rather than an official communication, have accused the US of protectionist policies and referenced the manner in which the tariff was imposed (in the dark of night) and the manner in which it was disclosed to them (via a Reuters report) to prove this point.

The Obama is under immense pressure from internal lobbyists for the Automobile parts industry, which claim that 5,000 jobs have been lost so far as a direct result of the mass influx of cheaper Chinese made tires.

Coupled with the declining popularity of Obama’s policies and administration as a whole, the pressure caused them to make a serious mistake in enacting this policy – and I have to agree with the Chinese that the manner in which it was enacted and disclosed was irresponsible.

The ramifications of this deal will only serve to hurt the US Dollar moving forward. If Forex traders perceive the US to be losing favor with China – and if it was not apparent this was happening until this point, be sure that this surely seals the issue – they will stay as far away from the Dollar as they can.

China has already been converting their Dollar reserves to commodities like gold and platinum, they have already slowed down on their purchases of US Government securities to the point that the largest buyer now of US debt, is the US Government itself. This action will only worsen the situation moving forward.

The Dollar has been beaten on the Forex Market – down to yearlong lows against a basket of currencies. Forex traders cannot afford to have the US Dollar further harmed by inadequate policies that were borne out of politically motivations.

As President, Obama needs to stand strong for the greater good of the country, and this means if he has to say “no” to special interests for the greater good, he needs to do so. His legacy will be better served by doing the right thing for the long term than it would for appeasing a specific group who is making a lot of noise in the short term.


Anonymous September 16, 2009 at 1:01 AM  

Prospect of Carry and Protectionism put Dollar under Pressure!!!
Is like lately everything pressures it… I love USD! I read your blog and I can see you are a fan of AUD…
Good news from the US economy will feed optimism, prompting the dollar to lose against its rivals. What do you think of a resistance for the pair at 0.8652?

Take a look at this chart for this currency pair:
It is from the broker ACM news section.

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