Good NYT article on how the dollar’s decline is crushing African apparel manufacturers
Especially enlightening is this paragraph:
The dollar could not have shrunk at a worse time for southern Africa. In January, China's powerful apparel industry was freed from the so-called multifiber arrangement, which for decades set nation-by-nation quotas and capped its garment exports to the developed world. Now China, which keeps its currency tightly pegged to the dollar, has begun to pursue the American market much more avidly.
So why doesn’t China just devalue their currency as the free-traders in the Bush administration keep insisting? It’s pretty simple – they are not fools. Two decades ago, it was the trade deficit with Japan that was killing the US. Enter James A. Baker, III, first as Secretary of the Treasury and then as State. He embarked on a policy of “talking down” the dollar. This had economic benefits for the US – imports got more expensive and pir exports got cheaper. Most importantly, The Japanese banks were one of the prime creditors for the growing Reagan deficits. As the dollar declined, so did the value of the money we owed them. In effect, he stiffed them and helped plunge the Japanese economy into a recession from which it is only now beginning to recover.
The Chinese watched with, uh, interest. Now they have become one of our major creditors, at the tune of at least a billion per week or about 10% of the US budget deficit. A big difference between the 80s and now is that interest rates were falling then, but now they are rising. Greenspan can try to apply the brakes to that, but only at the risk of stifling the much-vaunted “recovery.” So the Chinese accept the minor risk of principal loss due to predictable rates rises at an incremental and all-but-advertised progression. They won't be left holding an empty bag like the Japanese were.
Our budget deficits soar, with not even a token veto to give the impression domestically that we're putting on the brakes. Our trade deficits grow as the dollar falls against all other currencies except the Chinese Yuan Renminbi, which is pegged to it. Baker or his current surrogate can talk the dollar down until they’re blue in the face, but the value of Chinese loans and exports are not affected. Meanwhile, even if they were, we don’t make anything to export anymore because we’ve outsourced manufacturing to save costs – and we’re still gasoline swilling addicted consumers. In short, we’re fucked.
10:49:28 PM 
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