4.21.2005
Blame China? (NYTimes.com)
EDITORIAL
Published: April 21, 2005
Members of Congress, egged on by American manufacturers, are threatening to slap punitive tariffs on Chinese goods unless China increases the exchange rate of its currency, the yuan, thus raising the price of Chinese imports here. Some Senate Democrats are even threatening to block President Bush's choice for the United States trade representative, Rob Portman, unless the administration also espouses get-tough tactics. This is protectionism raising its ugly head, and an all-around dreadful strategy. That's only in part because Mr. Portman, one of the president's better nominations, deserves confirmation. Worse, it's based on a misunderstanding of both China's financial situation and the cause of American economic woes.
At the heart of this debate is China's policy of linking the value of the yuan to the value of the dollar. That was called sound policy when the dollar was strong. But now that it is weak, Congressional critics call it manipulation because it makes already inexpensive Chinese goods even cheaper the world over. As proof that the yuan is undervalued, the tariff seekers point to the United States' ballooning trade deficit with China, which accounted for about one-fourth of the United States' gargantuan global trade imbalance of $617 billion in 2004.
The trade deficit and the loss of American manufacturing jobs are very serious problems. It would be nice to think that they would self-correct if China would only change its ways. Nice, but wrong. Most of the trade gap with China is caused by Americans' insatiable appetite for Chinese imports, for which there are few domestic substitutes. And even if the yuan's exchange rate is too low - a point on which economists differ - it is a minor contributor to the trade deficit. If China let the yuan appreciate by 20 percent, and most other Asian currencies followed suit, the deficit would probably decline by only about one-fifth over the next year or two. That's not nearly enough to bring the American trade imbalance into a range that is generally considered sustainable.
(More ... The New York Times > Opinion > Editorial: Blame China?) ¶ 23:59
Published: April 21, 2005
Members of Congress, egged on by American manufacturers, are threatening to slap punitive tariffs on Chinese goods unless China increases the exchange rate of its currency, the yuan, thus raising the price of Chinese imports here. Some Senate Democrats are even threatening to block President Bush's choice for the United States trade representative, Rob Portman, unless the administration also espouses get-tough tactics. This is protectionism raising its ugly head, and an all-around dreadful strategy. That's only in part because Mr. Portman, one of the president's better nominations, deserves confirmation. Worse, it's based on a misunderstanding of both China's financial situation and the cause of American economic woes.
At the heart of this debate is China's policy of linking the value of the yuan to the value of the dollar. That was called sound policy when the dollar was strong. But now that it is weak, Congressional critics call it manipulation because it makes already inexpensive Chinese goods even cheaper the world over. As proof that the yuan is undervalued, the tariff seekers point to the United States' ballooning trade deficit with China, which accounted for about one-fourth of the United States' gargantuan global trade imbalance of $617 billion in 2004.
The trade deficit and the loss of American manufacturing jobs are very serious problems. It would be nice to think that they would self-correct if China would only change its ways. Nice, but wrong. Most of the trade gap with China is caused by Americans' insatiable appetite for Chinese imports, for which there are few domestic substitutes. And even if the yuan's exchange rate is too low - a point on which economists differ - it is a minor contributor to the trade deficit. If China let the yuan appreciate by 20 percent, and most other Asian currencies followed suit, the deficit would probably decline by only about one-fifth over the next year or two. That's not nearly enough to bring the American trade imbalance into a range that is generally considered sustainable.
(More ... The New York Times > Opinion > Editorial: Blame China?) ¶ 23:59
