This article is like the tail wagging the dog.<p><i>Krugman made a name for himself challenging the very assumption that free trade always leads to mutually beneficial outcomes</i>. If you want to take him on with regard to trade theory, you can't simply respond with the original orthodoxy that protectionism is bad and free trade is good. You'd have to address his specific arguments about economies of scale and the possibility of being "locked-into" a bad trade situation (at a local maximum).<p>There's a little bit about it here: <a href="http://en.wikipedia.org/wiki/Paul_Krugman#New_trade_theory" rel="nofollow">http://en.wikipedia.org/wiki/Paul_Krugman#New_trade_theory</a>
It is <i>not</i> in the US best interest for China to release the yuan. If that were to happen, the buying power of chinese holders of the yuan will increase to the point that their demand for goods will compete with the U.S. demand for goods. As the dollar declines, American buying power will also decline, as will american "quality" of life.<p>More expensive chinese goods will not lead to more american manufacturing. Instead, it will lead to more Indian. Pakistani, Bangladeshi manufacturing. A more valuable yuan will be a short term fix -- if it is a fix -- which I don't believe it is.<p>If the yuan is released, the dollar will cease to be the world reserve currency in an economic blink of an eye. While it is fixed, there's no reason to switch from dollars to yuan, but as the yuan begins to climb, fewer and fewer banks or even individuals will want to hold the dollar and our savings will dwindle due to the massive inflationary effects.<p>The U.S. consumer of goods -- all goods -- not just "cheap chinese crap," buys most of their stuff from overseas. Many asian countries and south america are huge suppliers of electronics, textiles and <i>food</i>. 1.5 Billion people in china also need to eat and when they can pay 150% in the exporters' local currency relative to what american retailers can pay, why would they bother shipping those goods across an ocean? Why wouldn't south america send their ships to asia instead of Los Angeles?<p>The <i>only</i> solution to this problem is for America to stop needing the plastic fix. They need to start saving their money, investing their money, and producing goods the rest of the world wants to buy. There is no other solution in a global economy.<p>Protectionism won't work. Complaining won't work. Badgering China to deflate the yuan won't work.
John Mauldin made a much better analysis of this. If we charge a tariff on China, will it really improve our trade deficit so much that our goods will be from Vietnam, Indonesia or [other country here]?<p>I suggest that anyone skeptical of this should go to their local mall and stop by a few clothing stores, like the Gap, Old Navy, AE, Banana Republic, etc. What you'll find is interesting. At the lower end shops (like the Gap and Old Navy), a lot of the merchandise is no longer made in China. But in higher end shops (like the Banana Republic), it still is.<p>I thought this was fascinating for different reasons than my mother (who discovered it), because you can see quite clearly, right there in the mall, that the economics is working, and China isn't some magical demon that can somehow keep on producing the cheapest. It's already cheaper to produce in El Salvador and Vietnam than it is in China.<p>Moreover, if you impose a tariff, then we'll just be buying crap from those other countries, which isn't going to help our trade deficit and our economy, and will likely start a trade war, which will in likelihood hurt our economy. Think about China pressuring everyone in their neighborhood to buy Airbus instead of Boeing.
> Unlike Britain, America doesn't really do free-traders<p>Seriously? America effectively invented modern neo-liberalism, and exported it abroad via international agreements (WTO, NAFTA, IMF loan agreements...)<p>> China makes an easy scapegoat for America's ills, but it is not the cause<p>The author makes this point but provides nothing to back it up. I could totally understand the argument that China helped induce the recession through cheap loans. I could also buy the argument that it didn't given a well-reasoned argument. Give me something to chew.<p>I'm not the biggest Krugman fan, but this article is all bark and no bite.
<i>The US is still a largely internalised, self-reliant economy for which trade with the outside world is relatively unimportant.</i><p>Unfortunately, the article seems to omit the extraordinary evidence to support this extraordinary claim, seeing as there's likely more than enough evidence to the contrary sitting on the author's desk, inside it, under it, scattered about his office, and on his very person if he would check the country-of-origin tags.
Since markets hate uncertainty, then why not say, "in one year if the valuation of the Chinese currency isn't fixed, we will impose a surcharge.". There is no reason why this would have to be a sudden move. This would let manufacturers figure out a backup plan, and still put plenty of pressure on Beijing.
a) The Telegraph is a tabloid, why not link to a better news source?
b) There is precedent for this sort of move, as Krugman's original article said it was done in the 70s with Germany and Japan until they raised their currency values.<p>Is it a good idea? It's probably a bit risky but it's got to be better than letting China continue to manipulate currency and be a drag on the rest of the world's economy. I imagine a tariff that large would probably get them to float the renminbi fairly quickly.<p>// Edit: I take back the tabloid comment, I was thinking of the Aussie Telegraph which is absolutely a tabloid. My point still stands, that what China is doing needs to be dealt with and that it's hardly the end of the world to put tariffs on them.
Jeremy Warner simply doesn't understand the issues at the depth Krugman does. Doing nothing threatens the world much more than a surcharge to offset the renminbi.