Crackdown on China Trade Tactics: Will It Help?

http://www.reuters.com/article/newsOne/idUSTRE4BN0SL20081224

Obama has promised to get tough on trade, cracking down on a wide range of practices ranging from subsidies to currency manipulation.  The linked article chronicles the challenges.  But will any of this really help reduce our trade deficit and bring manufacturing jobs back home, or will it initiate a global game of “whack-a-mole” where new trade offenders pop up as quickly as others are dispatched?

If the Obama administration attacks Chinese government subsidies, new trade barriers will pop up by the time the WTO has ruled against the old ones.  And by the time anti-dumping cases meander their way through the WTO bureaucracy, currency manipulation will have rendered the cases moot by restoring the profitability of the exports.  So then the focus turns to currency manipulation:

U.S. labor and trade groups will also browbeat the incoming administration to brand China a currency manipulator, potentially opening the door for other steps to pressure Beijing, including a possible complaint to the WTO.

China’s exchange rate with the United States is a festering complaint of many U.S. manufacturers who say Beijing deliberately undervalues its currency to boost exports.

“We are very committed to seeing some strong action on China’s currency,” said Thea Lee of the AFL-CIO labor group.

Obama, who said that China’s yawning trade surplus with the U.S. was “directly related to its manipulation of its currency value,” had backed legislation that would designate currency manipulation as a subsidy under U.S. trade remedy laws, noted Gil Kaplan, chairman of the Committee to Support U.S. Trade Laws.

“That was important legislation and I hope Obama will push forward some kind of legislative solution on currency manipulation,” said Kaplan.

Branding China a “currency manipulator” opens the door to imposing tariffs on China.  While that sounds promising, it’s unlikely to have much effect on our overall trade deficit.  Manufacturers will simply flee China and head for someplace else where gross overpopulation has produced a bloated labor force – places like India and Bangladesh.  The trade deficit with China will surely decrease, but other deficits will grow as quickly.  And, by the way, why single out China?  Japan has been at it much longer and makes China look like a rank amateur when it comes to currency manipulation. 

Such a piece-meal approach to trade is ultimately doomed to failure because it tinkers with symptoms while ignoring the root cause – the huge disparity in population density between the U.S. and so many of our trading partners.  Without a global system of tariffs designed to address huge imbalances in the supply and demand of labor, the overall trade deficit will persist.  The focus needs to be on our overall trade deficit, not on one country or another.  When expressed in per capita terms, our deficit with China is no worse than that with many other densely populated countries.  It’s time to stop blaming the trade policies of other nations and turn the focus on ourselves.  Our own trade policies are the problem.  We need a policy that assures a balance of trade regardless of what other nations do.  Our trade deficit is our responsibility, not theirs. 

Before closing, there’s one statement in the article that merits comment:

Obama’s trade dispute task-list is likely to grow, as labor and industry groups push agendas that will place him on a delicate tight-rope — to be seen to be protecting U.S. jobs while avoiding a potentially disastrous trade war with Beijing.

First of all, it’s time to stop being “seen to be protecting U.S. jobs” and actually begin doing it.  Secondly, we’re already in a “disastrous trade war with Beijing” and we’re losing badly because we haven’t had the guts or common sense to even put up a fight.  If and when we do decide to engage, it’s impossible to lose the war when you’re the one who has the trade deficit.  It’s no different than if FDR responded to the attack on Pearl Harbor by saying, “let’s not fight back – that might really piss them off.”

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One Response to Crackdown on China Trade Tactics: Will It Help?

  1. RaiulBaztepo says:

    Hello!
    Very Interesting post! Thank you for such interesting resource!
    PS: Sorry for my bad english, I’v just started to learn this language 😉
    See you!
    Your, Raiul Baztepo

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