Tag Archives: Trade

Quote of the Day

“What’s the right policy toward China? They put a few trillion dollars worth of stuff on boats and sent it to us in exchange for U.S. government bonds. Those bonds lost a lot of value when the dollar fell relative to the euro and other currencies. Then they put more stuff on boats and took in ever more dubious debt in exchange. We’re in the process of devaluing again. The Chinese government’s accumulation of U.S. debt represents a tragic investment decision, not a currency-manipulation effort. The right policy is flowers and chocolates, or at least a polite thank-you note.”

— John H. Cochrane, October 26, 2010

China Trade Redux

Each time the China currency issue erupts, I like to repost my articles on the topic:

“Geithner is Exactly Wrong on China Trade” – The Wall Street Journal. January 26, 2009.

“An End to Currency Manipulation” – Far Eastern Economic Review. March 26, 2008.

“The Elephant in the Barrel” – The Wall Street Journal. August 12, 2006.

“Money and the Middle Kingdom” – September 24, 2003.

China Trade Redux

With the China currency question once again in the news, I’m reposting my Wall Street Journal article from early 2009. (For a much longer treatment, see this paper.)

THE WALL STREET JOURNAL / January 26, 2009

Geithner Is Exactly Wrong on China Trade

The dollar-yuan link has been a great boon to world prosperity


Treasury Secretary-designate Tim Geithner’s charge that China “manipulates” its currency proves only one thing. Three decades after Deng Xiaoping’s capitalist rise, America’s misunderstanding of China remains a key source of our own crisis and socialist tilt.

The new consensus is that America failed to react to the building trade deficit with China and the global “savings glut,” which fueled our housing boom. A “passive” America allowed China to steal jobs from the U.S. while Americans binged with undervalued Chinese funny money.

This diagnosis is backwards. America did not underreact to the supposed Chinese threat. It overreacted. The problem wasn’t “global imbalances” but a purposeful dollar imbalance. Our weak-dollar policy, intended to pump up U.S. manufacturing and close the trade gap, backfired. Currency chaos led to a $30 trillion global crash, an energy shock, bank and auto failures, and possibly a new big government era. For globalization and American innovation to survive, we must first understand the Chinese story and our own monetary mistakes.

We’ve heard the refrain: China’s rapid growth was a mirage. China was stealing wealth by “manipulating” its currency. But in fact China’s rise was based on dramatic decentralization and sound money. (more…)

The Hoped-for Collapse of China

Gordon Chang wonders whether a President Obama will “restrict trade with China.”

Absent from recent trade debates in the U.S. is the fact that last year all but $5.9 billion of China’s overall trade surplus of $262.2 billion related to sales to America. The temptation is that Obama will try to use this leverage over Beijing to restructure trade relations in the coming years. In President Bush’s second term, a fundamental realignment of ties with China was unthinkable. In view of the powerful forces at work in these volatile times, however, many of the assumptions we now make about trading with the Chinese may no longer be valid.

Lots of people mistakenly get charged up over trade deficits. But Chang, who has been predicting — or more accurately, hoping for — The Coming Collapse of China for a decade, should really know better than to take a bilateral trade imbalance seriously. Think about it: Japanese and Korean firms send goods into China for final assembly and shipment to the U.S. The U.S. trade deficit with China jumps but falls vis-a-vis Japan and Korea. Problem? No. 

Anyway, Chang may not need an explicit Obama trade blockage to get his China crash wish. Washington’s more indirect but just as ill-conceived effort to cut the U.S. trade deficit via an inflationary weak-dollar has already worked its wicked protectionist magic — see, global panic and recession — and the question now is whether China’s juggernaut will merely slow, or succumb.