Thursday, March 25, 2010

Thursday Quick Hits - Currency Sanity Edition

After a little introspection (read: narcissistic mirror-gazing), I've come to realize that I've been RANTING a lot about the China currency debate recently, so in the spirit of happiness and comity, today's quick hits will feature only things on this tense issue that make me smile.  Needless to say, Chuck Schumer will not be featured.
  • WTO probably won't be kind to US attacks on China currency, and vice versa.  James Bacchus, former head of the WTO's Appellate Body (basically the "Supreme Court" of the WTO) has a great op-ed in today's Wall Street Journal Asia.  The whole thing is definitely worth reading, but here's the basic gist: "[Labeling China a 'Currency Manipulator'] would—if further negotiations failed—likely result in litigation at the World Trade Organization. Whether the U.S. or China prevailed, a WTO case would be self-defeating for both countries and disastrous for the global trading system." Bacchus goes on to explain how (i) US application of countervailing duties (CVDs) against Chinese imports that are allegedly "subsidized" by the PRC's currency "manipulation" would definitely be challenged by China at the WTO and would probably not go well for the US (something I'll be writing about soon), (ii) a US offensive challenge against China under GATT Article XV:4 would be unprecedented and thus a total wildcard, and (iii) either defensive or offensive case could, because of the huge political, legal and economic ramifications, threaten to tear the now-fragile WTO to shreds.  (Not that it matters, but I couldn't agree more.)
  • Most of congress will not, ahem, appreciate the results of the RMB's eventual appreciation.  Cato's Dan Ikenson has a nice piece of new analysis and recent commentary (circulating here and elsewhere) about the likely results of the appreciation of China's currency, the RMB, versus the dollar.  The basic gist: the trade balance ain't gonna change that much, unilateral action against China would result in needless retaliation, and "[i]f it is desirable that China recycle some of its estimated $2.4 trillion in accumulated foreign reserves, U.S. policy (and the policy of other governments) should be more welcoming of Chinese investment in the private sector. Indeed, some of China's past efforts to take equity positions or purchase U.S. companies or buy assets or land to build new production facilities have been viewed skeptically by U.S. policymakers-and scuttled-ostensibly over ill-defined security concerns." Me: but Dan, dude, those "policymakers" don't want China buying private debt, they want it buying public debt, but just at a cheaper (devalued) price. Duh.
  • Dear Congress: this may come as a surprise, but your hyper-aggressive, unilateralist options, umm, stinkAEI's Phil Levy testified before the House Ways & Means Committee yesterday and did a really nice job laying out all of Congress' options on the China currency issue, and then politely laying the smack-down on all but the least-aggressive of them through a simple dose of sanity and logic.  He also shows how the RMB peg actually hurts China a lot more than the United States, and how, even if the currency hawks like Paul Krugman and Fred Bergsten are right about the US being in a "liquidity trap," it would be impossible for the Chinese to revalue fast enough without, you know, totally destroying their economy.  Definitely worth a read, even though we all know that logic and sanity have no place in the China currency debate.


Anonymous said...


Cheer up. We love the rants.

The China currency issue is huge. We can't let this deteriorate into a trade spat that lowers global economic growth (and promotes more meddling by governments!).

I'm amazed at how much there is to trade issues: labor, environmental, currencies, immigration, Congressional bickering, to name a few.

Scott said...

Thanks, Anon. As for trade, yes, it's a deep and wide playing field. My blog could really stand a staff of interns. I'd even be willing to pay them just as much as I'm paid for the blog. :-)