Tuesday, March 16, 2010

Complaints About China

Krugman recently wrote an article saying how the US needs to "get tough" with China and its undervalued RMB. He suggests a 25% tariff on Chinese goods. It's been interesting reading the comments. They are much less anti-China than they used to be. Of those who disagree with this policy, here were a number of similar themes.

1. The US banking sector caused this economic collapse, not China, so the US can only blame its problems on its own policies of deregulation and thus should bear the burden of fixing itself. In fact, many people praised the Chinese for working hard and the Chinese government for unabashedly looking out for the well-being of their citizens, which was nice but kind of strange to hear and might not be totally deserved. There is also the widespread view that China has helped to stabilize the world economy.

2. People pointed out that a tariff or devaluing the RMB would probably put 30 million Chinese people out of work, and it would be hard to convince the Chinese that this is more fair than having unemployment in the US, especially since most Americans are still better off than most Chinese people.

3. The US pursued a policy of free trade in the first place and while American manufacturing was moved overseas, hurting the labor class, many other Americans gained financially from these policies. Much of the cheap goods that are manufactured in China were made for US companies. Now that the US government does not want to be in debt to China anymore, they want China to devalue its currency so that the government effectively owes less money.

4. The idea of tariffs and moving away from free trade is not intrinsically a bad idea, but rebuilding American manufacturing would be a long term commitment. The immediate effects of a tariff would be that people would buy from the second cheapest places like other countries in SE Asia. It would basically be like a sales tax on Americans. People pointed out that the US also has trade deficits with many other countries like Japan and Germany so it's a more structural problem than just value of the RMB.

5. Some questioned whether "devaluing" the RMB is really less fair than the kinds of economic and trade policies practiced by the US. The value of currency is not that clear cut, and much of the purpose of monetary policy is to influence the value of the currency.

6. Krugman is also known for advocating going into even more debt to stimulate the economy. He is in favor of a Keynesian New Deal type program. This seems inconsistent with his views on trade with China.

7. Actually, the book Poorly Made In China was lamenting that it is becoming more difficult and expensive to manufacture in China, so perhaps the trend is already for manufacturing to move away from China.

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