Krugman: Very Serious Reactions to the Levin Bill

[ProSense]

Very Serious Reactions to the Levin Bill

As regular readers know, I’m getting increasingly disgruntled with Very Serious People, who offer wise reasons not to do anything about devastating unemployment. Inevitably, the VSPs are weighing in on the Levin bill authorizing countervailing duties on Chinese goods, offering very wise-sounding reasons why we should do nothing about outrageous, destructive currency manipulation.

Today’s editorial in the usually sensible FT is a case in point; it sounds very reasonable, unless you have actually looked at and thought about the subject.

So, first:

Yet slapping tariffs on Chinese imports is not an effective response. It is needlessly confrontational given that China has been willing to address US concerns, if at snail’s pace, through diplomacy. It has allowed the renminbi to appreciate by almost one percentage point since Barack Obama’s top economic adviser Lawrence Summers visited Beijing two weeks ago, around half of the total increase since June.

Seriously? They think diplomacy has been working? Here’s the actual exchange rate story:

<...>

Urk. If China has an advantage due to low wages, then one way to raise those wages in dollar terms is, you know, to raise the value of the renminbi. And if wages matter, why won’t tariffs? As for the high savings thing: aside from the apparent reappearance of the doctrine of immaculate transfer, if you’re paying attention at all you know that China is now suffering from serious inflationary pressures. This means that China doesn’t need to increase demand first; its economy already “wants” a stronger currency, and China’s government is having to work hard to suppress those pressures.

Finally, the idea that what we need is a mature discussion of global rebalancing strikes me as reasonable — if you have been living in a cave the past three or four years. We’ve been reasoning, and reasoning, and reasoning, and nothing changes. Clearly, China does not want to act — not out of national interest, but because of the political influence of its export industries. It won’t change its behavior unless it faces an additional incentive — like the prospect of countervailing duties.

The Levin bill is a step toward a more balanced world, not away from it.

[leveymg]

1. We seriously need to revisit global trade, currency and capital issues. It's time. Past time.

As usual, Krugman says it first, best.