{"id":436219,"date":"2010-03-16T18:06:00","date_gmt":"2010-03-16T22:06:00","guid":{"rendered":"e2249889-c78b-43e3-9643-b1d7d4aa587b:408752"},"modified":"2010-03-16T18:06:00","modified_gmt":"2010-03-16T22:06:00","slug":"are-we-headed-toward-a-global-trade-war","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/436219","title":{"rendered":"Are we headed toward a global trade war?"},"content":{"rendered":"

Are we headed toward a global trade war? Maybe so, judging from the rhetoric that is being thrown around by some big names. The issue is whether the United States should try to remedy its trade deficit by forcing China to make its currency\u2014and hence its exports\u2014more expensive.<\/p>\n

Paul Krugman, the U.S. economist and Nobel winner, is one of those talking tough<\/a>. \u201cIt\u2019s time to take a stand\u201d against China\u2019s currency peg with the U.S. dollar, he says. He\u2019s urging Congress to name China as a currency manipulator and threaten it with tariffs of 25% on any Chinese goods entering the United States.<\/p>\n

But wouldn\u2019t that cause the Chinese to dump their massive holdings of U.S. Treasury bonds? It might, says Krugman, but if so there\u2019s nothing to worry about. Even if China sold all its U.S. bonds, interest rates would remain much where they are. The only effect would be a decline in the value of the U.S. dollar and that would actually be good news since it would make U.S. exports cheaper and more competitive.<\/p>\n

All of that may be so, but it raises at least three questions.<\/p>\n

One is how much effect a free-floating or revalued renminbi would have on the U.S. trade deficit. <\/p>\n

Scott Sumner, an economics professor at Bentley University in Boston, points out<\/a> that China revalued its currency in 2005 and let it rise 22% against the dollar, but that increase hasn\u2019t put a dent in China\u2019s trade surplus. Or consider Japan, which over the years has let the yen quadruple in value against the U.S. dollar, but still enjoys a big trade surplus.<\/p>\n

As Sumner says, \u201cI think it\u2019s fair to say that international economists have become increasingly skeptical of the notion that simply by manipulating nominal exchange rates you can eliminate current account imbalances that represent deep-seated disparities of saving and investing.\u201d<\/p>\n

The second question is who has the moral high ground in this debate. Krugman sounds like a bully as he urges Washington to hammer China. It\u2019s also not clear why the world should be cheering a revaluation that would punish poor Chinese workers.<\/p>\n

Finally, there\u2019s the question of what China is supposed to do with the massive amount of U.S. wealth its export success has brought it. <\/p>\n

If Washington were to impose trade sanctions, China could sell its huge portfolio of U.S. Treasuries in protest\u2014but then what? <\/p>\n

One possibility would be for it to use the proceeds to buy up swaths of U.S. real estate as well as major U.S. corporations. But a foreign takeover of this magnitude would be even more likely to inflame tensions. Remember how the U.S. politicians moved to block an entirely legitimate attempt by a Chinese company to buy Unocal Corp. of California back in 2005?<\/p>\n

It\u2019s clear that neither side in this trade relationship is playing fair. China wants to manipulate its currency to boost its exports to the United States. The United States is happy to benefit from the cheap exports, but doesn\u2019t want China to use the resulting earnings to buy anything of real value. As in most trade wars, this isn\u2019t a question of right or wrong, but a struggle for loot.<\/b><\/p>\n

Freelance business journalist Ian McGugan blogs for the Financial Post. <\/b><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Are we headed toward a global trade war? Maybe so, judging from the rhetoric that is being thrown around by some big names. The issue is whether the United States should try to remedy its trade deficit by forcing China to make its currency\u2014and hence its exports\u2014more expensive. Paul Krugman, the U.S. economist and Nobel […]<\/p>\n","protected":false},"author":5094,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-436219","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/436219","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5094"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=436219"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/436219\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=436219"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=436219"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=436219"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}