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April 21, 2005
The Times gets it right on China
From the NY Times editorial page:
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.
Tariff-mongering politicians don't necessarily want to believe this. "Many of us feel they're playing this country for a fool," Senator Charles Schumer of New York fumed at a recent hearing. Treasury Secretary John Snow, to his credit, explained at that hearing how a premature yuan revaluation might do more harm than good.
That's just a sample. Read the whole thing. It's right on target.
UPDATE: More on China in today's Times.
Posted by William Polley at April 21, 2005 12:36 PM
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