As regular readers know, I am growing increasingly impatient with Very Serious People, who offer wise reasons not to do anything about the United States’s devastating unemployment rate.
Very Serious People have now begun to weigh in on the Levin bill — named for Sander M. Levin, a Democrat in the House of Representatives — which would authorize countervailing duties on Chinese goods in response to the country’s refusal to revalue its currency. Inevitably, these people are arguing that we should do nothing about the outrageous, destructive currency manipulation that is the basis of China’s trade advantage, and is costing Americans jobs.
A Sept. 23 editorial in the usually sensible Financial Times is a case in point: it sounds very reasonable, unless you have actually looked at and thought about the subject.
“Slapping tariffs on Chinese imports is not an effective response. It is needlessly confrontational, given that China has been willing to address U.S. concerns, if at snail’s pace, through diplomacy,” according to the editors. “It has allowed the renminbi to appreciate by almost one percentage point since Barack Obama’s top economic adviser Lawrence Summers visited Beijing two weeks ago, around half of the total increase since June.”
Seriously? They think diplomacy has been working?
The small adjustments China has made, and then reversed, before events like Group of 20 gatherings and just ahead of the vote on the Levin bill (which the House passed by a strong majority) do not suggest that diplomacy is working. China is merely making empty gestures designed to head off American action.
The Financial Times editorial continues: “Import duties would also barely dent China’s surpluses, which are largely the product of its low wages and high savings.”
Argh. If China has an advantage due to low wages, then one way to raise those wages in dollar terms is to raise the value of the renminbi. And if wages matter, why not tariffs? The suggestion that all we need is a mature discussion of global rebalancing strikes me as reasonable — if you have been living in a cave the past three or four years. The United States has been reasoning, and reasoning, and reasoning, and yet nothing changes.
Clearly, the Chinese government does not want to act — not out of national interest, but because of the political influence of Chinese export industries. China won’t change its behavior unless it faces an additional incentive — like the prospect of countervailing duties.
The Levin bill is a step toward a more balanced world, not away from it.
Backstory: A Hard-Line Approach
The House of Representatives passed a bill on Sept. 29 that aims to give President Barack Obama more authority to impose tariffs on almost all imported Chinese goods coming into the country — a clear warning that American officials have, after much debate, reached a turning point regarding China’s cheap exports and its alleged attempts to gain a competitive trade advantage through the manipulation of its currency exchange rate.
With the unemployment rate in the United States at 9.6 percent and the manufacturing sector severely crippled, many American officials are convinced that a stronger renminbi is necessary for economic recovery, even if it sparks a global trade war — prompting nations to weaken the value of their own currencies to better compete.
According to the Associated Press, American manufacturers believe China’s currency is undervalued by as much as 40 percent against the dollar, making Chinese products cheaper and more competitive in the United States. On the other end, American products are much more expensive in China, which decreases demand for them.
China has been defiant, arguing that the large public debts and loose monetary policies of central banks in the West are causing economic woes.
The move the United States is contemplating would mean that it would be taking an aggressive stance against currency manipulation. The bill now needs the approval of the Senate — which has its own proposal pending and will probably not debate the issue until after the midterm elections in November.
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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007).
Copyright 2010 The New York Times Company.