Macroeconomic effects of Chinese mercantilism - Krugman

[AllentownJake]

For something I’m working on: we know that China is pursuing a mercantilist policy: keeping the renminbi weak through a combination of capital controls and intervention, leading to trade surpluses and capital exports in a country that might well be a natural capital importer. We also know, or should know, that this amounts to a beggar-thy-neighbor policy — or, more accurately, a beggar-everyone but yourself policy — when the world’s major economies are in a liquidity trap.

But how big is the impact? Here’s a quick back-of-the-envelope assessment.

Start with the Chinese surplus. It has been temporarily depressed by the world trade collapse, but seems to be on the rise again. Blanchard and Milesi-Ferretti, at the IMF but speaking for themselves, project a Chinese current account surplus for 2010-2014 of 0.9 percent of gross world product.

You can think of this as a negative shock to rest-of-world net exports. (Technically, that’s not quite correct — because the shock depresses res-of-world GDP and hence rest-of-world imports from China, the realized trade surplus is smaller than the shock. But that’s a small correction.)

http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-chinese-mercantilism/

[Vinnie From Indy]

1. More to the point...

The Chinese have more fully realized the famous quote by Lenin that "The Capitalists will sell us the rope with which we will hang them" than the old Soviet Union's political bosses.

The only wild card for the Chinese communists is the fact that their population may become a bit more uncontrollable as they get more educated and prosperous. It is hard to keep them down on the farm once they have seen Paris.

Also, in regard to Lenin's quote, American companies are proving in spades that Lenin was correct. All of the big American iconic corporations are falling all over themselves to abandon the American worker and get in bed with the Chinese communists. What is truly amazing about the rush to China by American coproations is that just a few decades ago, this would have been unthinkable. I cannot imagine the outrage and uproar if GM would have sold a major line like the Hummer to Communist Russia. The right wing would have come unglued and probably would have attempted a coup to prevent the godless communists from getting their hands on American technology.

[AllentownJake]

2. Greed trumps everything

The cold war would have taken place whether Russia was "capitalist" or "communist". There were two great powers at the end of World War II and Russia and the US were competing for dominance. In the new world order, China is not perceived as much of a military threat, and US elites will have no problem using their slave labor for their profit.

[xchrom]

3. Bravo--so glad he's writing about this. Nt