We've had a number of discussions on this blog about China's currency valuation and possible U.S. WTO complaints in this area. For example, see here and here. Now, via Dan Drezner, I see this piece by James K. Galbraith, which, in the context of discussing the Democratic Party's trade views, expresses skepticism about the importance of the valuation issue:
Trade with China is another matter, for here is a fast-growing country that benefits hugely from US trade. China thus poses the question of trade without posing a question of trade agreements. And China has many people very worried.
On China the Hamilton Project--otherwise resolutely against interventions--has harnessed widespread anxieties to its own objectives. The Hamiltonians endorse the idea that China is a challenge. It is a challenge, they say, to be dealt with not via tariffs or quotas but by a massive revaluation of the Chinese currency, the renminbi (RMB), for which liberal senators like Charles Schumer and economists like Tom Palley also forcefully call.
Would a big RMB revaluation solve America's China-trade "problem"? Well, it might hit China's exporters (and also, inevitably, its workers) hard. Multinationals might migrate to other low-wage countries; American importers might seek other sources of supply, in other corners of the Third World. But this much is sure: Not a single low-wage job would return to the United States. So, American consumers could be harmed, while American workers wouldn't be helped. One has to ask: What gives? Why is this an issue for the progressive agenda?
Who really benefits from the pressure that our Treasury Secretary from Goldman Sachs, Henry Paulson, has been putting on Beijing? Well, speculators have flooded Chinese property markets in the past few years, contributing to a massive bubble in Shanghai and elsewhere. (China's trillion-dollar asset reserves come largely from sterilization of those investments--a central bank maneuver to insure that dollars do not circulate in China--and not just from its trade surplus.) If Paulson succeeds, they clearly would make out nicely. It may be that some of those speculators live in New York. That may explain Paulson's call--and Schumer's support--for an RMB revaluation. But it's not a reason for the rest of us to jump on board
Although making out a WTO legal claim on the valuation issue would, I think, be tough, I take the motivations of Schumer et al. at face value. I think they really believe there is a harm, and that putting pressure on China could help solve it. In the absence of evidence, I'm a little skeptical that this is all about "New York speculators."
