Getting tough on the Chinese, again
A variety of new laws aimed at forcing China to revalue the renminbi are before the US Congress. Up to now, such bills have come and gone, leaving little trace. But the latest plan from Democratic senators Max Baucus and Charles Schumer, and Republican senators Charles Grassley and Lindsey Graham, may be different.
For a start, it has been drafted to comply with the rules of the World Trade Organisation, to command broad international support and to be more difficult for the administration to defeat. It would compel the US Treasury to report on misaligned currencies (meaning the renminbi). If talks to address the issue then failed, the administration would be pushed towards sanctions including anti-dumping measures – in other words, higher tariffs against Chinese imports. The senators believe their bill may win enough votes to be veto-proof, and they could be right.
China’s current-account surplus has surged, and Washington’s views on the renminbi have hardened. When the administration ruled last week that it was not going to designate China as a “currency manipulator”, even previously moderate voices were raised in protest at this refusal to get tough. This thinking is mistaken, however. Getting tough would be wrong in substance and tactically counter-productive.
Indisputably, China’s currency is substantially undervalued. Its policy of high public sector saving is also adding to global economic imbalances. China’s government is serving its own citizens badly by continuing to peg its currency and invest the resulting surpluses in dollar reserves rather than better public services. The consequences of this currency mismanagement are real. Washington’s concern is legitimate, and Beijing is wrong to insist that its exchange-rate policy is entirely its own affair.
But how ready is Washington to acknowledge China’s equally legitimate interest in the conduct of American economic policy? One can hardly assert the first and deny the second. The US contribution to global economic imbalances is at least as great. No doubt, China is paranoiacally sensitive to perceived infringements of sovereignty or affronts to its dignity. The odd thing is that America’s politicians should find this attitude so hard to understand: their sentiments on the matter are the same.
What would Capitol Hill think of a Chinese “get-tough” ultimatum, declaring Beijing’s patience at an end, requiring immediate action to cap mortgage-interest tax relief and cut public spending, on pain of sanctions? The reaction would be gibbering, uncomprehending rage. Yet those American policies have seriously destabilising global implications, just as surely as does China’s decision to peg its currency.
The US should speak plainly to China, but casting its policies as an unprovoked assault on the US economy is absurdly one-sided. A discussion between trade partners with large mutual interests is likely to be more fruitful than a contest of accuser and accused. If Congress longs for manly confrontation on the trade deficit, it can take a hard look at its own spending plans.
