Recently, Hillary Clinton and Barack Obama have agreed to co-sponsor legislation aimed at making the Chinese government revalue their currency, the yuan.

A newsletter I subscribe to, Penny Sleuth, had an interesting article about the effects of this.

Here is a bit about some effects that they think would happen:

We believe tariffs benefit the select few at the expense of the entire economy and its citizens.

Think of it this way…simple example…China produces widgets for Wal-Mart at $20 a widget. American producers can’t do the job for less than $25. So American widget makers may lose their jobs. They plead to Washington, and Washington comes to the rescue. Congress slaps a $10 tariff (tax) on all Chinese imports. Wal-Mart now turns to the American widget producer.

But the retail giant must now pay $25 for each widget they stock. Consequently, they raise the shelf-price for widgets by 25%. Unfortunately, many American consumers simply can’t afford the price increase. Wal-Mart sales drop. The company is forced to cut costs. They lay off 10% of their work force.

The point: The number of jobs protected by import restrictions will be offset by jobs lost in other industries. And to top that, widgets are now more expensive for everyone in the American economy.

It gets better: In response, China decides to slap tariffs on American exports. Now American semiconductor makers can’t sell their products to Chinese computer makers. Sales drop. More jobs are lost.

And here’s where it gets worse: China cleverly cedes to America’s demands. The yuan appreciates 40%. Now every good we consume sporting the “made in China” labels gets noticeably more expensive. And just try buying something that’s not made in China.

Furthermore, China no longer has to keep the yuan from appreciating relative to the dollar. Meaning, China’s dollar demand drops. The fundamental need to buy U.S. Treasuries no longer exists. The dollar falls even further. Investors around the globe now requrire a higher rate of return to hold U.S. dollars. Interest rates rise. The economy slows…and so on…and so on.

Their final advice was to invest in PetroChina, because the legislation might not hurt assets independent of American consumers. This,combined with the fact that Iraq has said that they will allow PetroChina to develop oil fields, and the fact that because of the legislation the yuan will appreciate, would make PetroChina a sound investment if the legislation succeeds.

The point is that, like the third law of motion, every decision will have positive consequences along with equal and opposite negative ones, and with a little research and thought you can benefit from both.