Krugman: China, Japan, America

[JHB]

Today's column is on the need for action (and on the de facto inaction) about currency manipulation by the PRC government.

Last week Japan’s minister of finance declared that he and his colleagues wanted a discussion with China about the latter’s purchases of Japanese bonds, to “examine its intention” — diplomat-speak for “Stop it right now.” The news made me want to bang my head against the wall in frustration.

***

Some background: If discussion of Chinese currency policy seems confusing, it’s only because many people don’t want to face up to the stark, simple reality — namely, that China is deliberately keeping its currency artificially weak. The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.

***

Clearly, nothing will happen until or unless the United States shows that it’s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy. So why has such action never been on the table?

***

Consider a related issue: the clearly illegal subsidies China provides to its clean-energy industry. These subsidies should have led to a formal complaint from American businesses; in fact, the only organization willing to file a complaint was the steelworkers union. Why? As The Times reported, “multinational companies and trade associations in the clean energy business, as in many other industries, have been wary of filing trade cases, fearing Chinese officials’ reputation for retaliating against joint ventures in their country and potentially denying market access to any company that takes sides against China.”

http://www.nytimes.com/2010/09/13/opinion/13krugman.html?_r=1&ref=opinion

And just for giggles, at the end:
"Ross Douthat is off today."
(as if he isn't off most days)

[Art_from_Ark]

1. What the ?

"You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history"

This was written by a Nobel Laureate in Economics? Damn. I think Mr. Krugman should take another look at the trade situation back in, for example, the late 1800s, when the values of European and American currencies were relatively stable vis-a-vis one another. I don't think it was currency policy that led to trade surpluses back then.