Tag Archives: Treasury

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…)

Technocrat trumps thinker

It looks like Tim Geithner of the New York Fed is Obama’s pick for Treasury Secretary, beating out Larry Summers. Geithner is a wily technocrat good at working the bureaucracy and the press. Summers is an intellectual famed for the just the opposite — his lack of skill with colleagues and reporters. Especially at this dangerous economic moment, I would have preferred Summers’ substance over Geithner’s guile. But I know far less about Geithner’s policy views and will retain an open mind. Good luck to him.

Update: Missed this from the article: 

The president-elect might name Mr. Summers, a highly regarded economist and a former president of Harvard University, as a senior White House adviser, people involved in the transition said.

On second thought, maybe that’s the perfect arrangement.

Update II (Saturday night): Summers will be director of the National Economic Council in the White House. Good move.