Paul Krugman's Finest Column - "Taking on China"

[TomClash]

http://www.nytimes.com/2010/03/15/opinion/15krugman.html?hp

It is well worth reading the entire column. This is a huge US foreign policy and global economic problem.


To give you a sense of the problem: Widespread complaints that China was manipulating its currency — selling renminbi and buying foreign currencies, so as to keep the renminbi weak and China’s exports artificially competitive — began around 2003. At that point China was adding about $10 billion a month to its reserves, and in 2003 it ran an overall surplus on its current account — a broad measure of the trade balance — of $46 billion.

Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed.

And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.

<snip>


But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.

[NJmaverick]

1. I would like to take a stand against China, but they have so much of our debt

they would be a strong position to retaliate.

[TomClash]

2. Krugman addresses that point well in his column nt

[NJmaverick]

4. I saw that, but I am still not comforable

a collapse of the US dollar's value would make raw materials and energy that much more expensive, so I think Krugman soft sold the down side.

[TomClash]

5. It increases the goods we export the most

Agriculture.

Raw materials are a relatively small component of production. It is still a huge trade gain - that's why China cheats on its currency.

[zipplewrath]

3. Last line is the problem

"It's time to take a stand"

This administration? The "No Drama" bunch? They won't stare down Joe Lieberman. Something tells me they ain't up to the Chinese.

[La Lioness Priyanka]

6. traditionally the US takes much more severe stands against foreign countries

than their own senators. I think we could do it. I don't think we will though.