The World Is Not Flat: Taking China To Task
The World Is Not Flat: Taking China To Task
The world is not flat and there is a distinct economic tilt toward China because of unfair economic policies instituted by the Chinese government. Following World War II, the USA has been the world's preeminent power and led the way in building the economies of other countries and indeed a "world economy." The USA implemented the Marshall Plan to rebuild Europe and created the World Bank and the IMF, all of which served the world well to help build the economies of many nations throughout the world. However, in the absence of global cooperation between the major economies of the world, and what former prime minister Gordon Brown has called for in his recent lecture at Harvard's Kennedy School of Government, namely global cooperation in which international rules and regulations are implemented to end crisis such as the 2008 global economic meltdown, the US must once again take a leadership role, but this time to protect our own economy first. In this regard, let's applaud last Wednesday's vote in the House of Representatives, sponsored by Representative Sander Levin, where a bipartisan majority (348-79) approved legislation that would potentially provide for sanctions on China because of its currency policy.
Although the bill has little bite, some pundits warn of a trade war and global economic disruption. Some will argue for diplomacy instead of this legislation. But diplomacy regarding China's currency has been ineffectual, and will continue to be so unless backed by the threat of retaliation. The argument about trade war is unjustified, and those making such an assertion are those that have been wrong about many things since our economic crisis began in 2008. For example, this was the group telling us how budget deficits associated with the stimulus package would lead to skyrocketing interest rates and soaring inflation. Instead, we face deflation in the USA. In a time of an economic downturn and mass unemployment, exacerbated by China's unfair currency policy, the possibility of a few additional tariffs on the part of the Chinese should be the least of our worries.
Consider that the major economies of the world are still hobbled by a burst in the housing bubble and the ensuing financial crisis. And given the depressed consumer spending, corporations are not expanding because they aren't selling enough to use their current manufacturing capacity. Although officials say the recession is over, unemployment is extremely high and there are no signs of recovery.
However, as Nobel Laureate Dr. Paul Krugman has argued, emerging economies have a very different situation. Because they have weathered the economic storm, are fighting inflation rather than the deflation we face, and offer abundant investment opportunities where capital from wealthier but depressed nations is flowing to the emerging economies. Emerging nations play an important role in helping the world economy arise from the slump.
But the largest of the emerging economies, China, which had a $226.8 billion trade surplus with the U.S. last year, isn't allowing the corrective economic process to evolve. Instead, as Krugman points out, restrictions on foreign investment limit the flow of private capital into China, and of more importance, because there is something we can do to counter this, the Chinese government does not have a free floating currency, rather China is keeping the value of its currency, the renminbi, artificially low by buying huge sums of foreign currency. In effect China is subsidizing its exports, and these subsidized exports are hurting employment throughout the world. Another words, as we allow the US middle class working force to deteriorate, we prop up low paid workers in foreign nations such as China, which in the short term is agreeable to our US corporations because such policy can help advance their financial bottom lines.
Chinese officials defend this policy and have expressed woe over the prospect of a stronger currency, declaring that they cannot imagine how many Chinese factories will go bankrupt, and how many Chinese workers will lose their jobs. I think US politicians and corporate executives should be equally worried by our plight in the USA.
While Levin's bill empowers U.S. officials to impose tariffs against Chinese exports because they are subsidized by the artificially low Chinese currency, the bill doesn't require these officials to take action. Thus U.S. officials may not, in fact, take action against China, rather we may see their continued imaginary sense of diplomatic progress on this issue. Therefore, the Levin bill may be a signal to the Chinese at best, but a move in the right direction. Sen. Charles Schumer is pushing a similar China currency bill in the Senate. Let's urge our politicians, especially urge our Senate to follow the House's lead on this all important issue, to continue this movement to force a level economic playing field. After all, this bill provides one of the few policy options available to the Obama administration for battling unemployment.
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