Creative New Arguments for Coddling China
Tuesday, November 27, 2012
A recent column by Slate.com’s Matthew Yglesias reinforces the impression that creatively defending disastrous status quos is a requirement for attaining pundit-dom.
Yes, Yglesias’ November 21 piece justifying U.S. inaction against China’s currency manipulation trots out the old saw that Beijing’s deliberate undervaluation of the yuan gives the U.S. economy cheap loans for which Americans should be grateful – as if a flood of subsidized credit only fueled asset bubbles and triggered a global financial crisis on some other planet.
But he added two new related wrinkles for the case for coddling Chinese currency predation. Yglesias argued that manipulation is giving Washington a huge windfall to spend on “useful public projects” if it so wishes. Alternatively, he wrote, these new resources could be used to stimulate the economy by financing extension of the payroll tax holiday.
Just two problems with these ideas. First, the cheap credit furnished by currency manipulation is being created literally by stealing profits from American producers that are artificially undersold by Chinese rivals around the world. So Yglesias reasoning amounts to a bizarre claim that government can use these resources at least as productively and efficiently as these victimized private sector actors – or nearly as effectively.
Second, he overlooks the certainty that much of the new consumer spending enabled by payroll tax cuts would purchase imports – many of course from China. So the growth and hiring benefits would leak from the U.S. economy to foreign economies. The bottom line? Even more indebtedness piled onto an already dangerously spendthrift nation.
Yglesias does make one valid point relevant to the currency manipulation debate: “Cross-border hectoring doesn't offer much of a solution to anything….” American politicians should indeed stop complaining about currency manipulation by China and other countries, and about all their other trade transgressions.
At a minimum, it’s long past time to offset
these practices with tariffs. And the creative juices of pundits and other Americans should start being devoted to formulating the fundamentally new international economic policies needed for U.S. success in a pervasively protectionist world.
(Source: “The Bogus Alarmism About ‘Currency Manipulation,’ by Matthew Yglesias, Slate.com, November 21, 2012, http://www.slate.com/articles/business/moneybox/2012/11/chinese_currency_manipulation_why_it_s_not_a_problem.html)
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).