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.
