From the Asia Times:
As for the beggar thy neighbor, it has become clear over the past week that
Chinese government officials intend to export their way out of the global
economic crisis. This is all too readily apparent in the recent downward
movements of the Chinese yuan relative to the dollar. Stripped of any rhetoric,
this movement represents a "competitive devaluation" designed to boost Chinese
exports to the US at the expense of both domestic US manufacturers and competing
countries such as South Korea and Japan.
Such a move, if deliberate and sustained, is potentially disturbing for three reasons. One, as Martin Wolf has argued, in order for the root causes of this recession to be addressed, the world’s massive surplus countries (ahem… China) must expand domestic demand to mitigate imbalances. China is neglecting its systemic responsibilities to satisfy domestic concerns, which brings me to my second point. I tend to think that when a government’s legitimacy and mandate to rule are predicated on delivering sustained rapid economic growth, such a government will be more tempted by “beggar-thy-neighbor” strategies.
Finally, in this particular economic climate, we really do need to be wary of the ghosts of Smoot-Hawley. I’m not fear-mongering, nor am I suggesting that we’re entering a new period of trade-destroying protectionism; in fact, I’ve argued the opposite. But there is a lot of damage to trade that could be done legally, without violating existing WTO commitments, mainly due to the gap between applied and bound tariff rates. This sort of posturing by China merely provides fodder for the Lou Dobbs crowd and makes international cooperation all the more difficult to sustain politically.
2 comments:
What about the American decision to bail out "national" industries in Detroit? Is this not just protectionism in a different disguise? As Megan McArdle pointed out, if another country had done this we would be suing the s*** out of them at the WTO. It also violates the spirit of all those lovely words at the G20.
I'm not defending China here - I agree completely with your points. But I worry that the danger is widespread.
Very valid points. The danger is indeed widespread: Germany is dedicating 1 billion EUR to its domestic auto industry, and France has pledged 25 billion EUR to "strategic national industries". China is probably going to extend a $1.5 billion loan to Chery, a national automaker, to help it expand internationally.
I am opposed to the auto bailout, but to me its about signaling intent going forward. To me, China revaluing its currency is a strong signal about Chinese intent to try to export their way out of trouble, which they may not be able to (or even should not) do this time around. America's bailout of its auto industry does not constitute the same signal in my mind and does not in and of itself indicate a swing toward protectionism.
Finally, it's still unclear as to whether the American auto bailout violates existing WTO obligations. It hasn't happened yet and we don't know how it will ultimately be structured. Even if it did, I'm not sure Megan McArdle is correct that this is something that the US would aggressively pursue dispute settlement over were it done in another country. Car making is weird. Only a handful of countries have strong auto industries, and they all more or less prop them up when need be, so no one really has an incentive/desire to call the other countries out on it.
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