Hither And Yuan -- China Growth Is Good For Us All
Though we often discuss business issues, we try to stay on topics where we can add value for our readers. We usually leave "big issue" posts like the proper valuation of the Yuan to others. But we know that issue is important to business so we wanted to make you aware of a new article with the contrarian view that China is good for the United States' balance of trade.
Economics professor Tyler Cowen has an article here in today's New York Times arguing China is in fact good for the U.S. balance of trade and that revaluing the Chinese currency against the dollar would have little impact. Mr. Cowen writes an excellent blog called Marginal Revolution and he also posted his article there, which has generated some excellent discussion in the economics blogosphere. Dan Drezner does a good job bringing together and linking to much of the discussion on his post here. Drezner posts his thoughts as well so it is well worth stopping by, but if you prefer to go directly to the posts to which he refers, you can read Greg Mankiw (agree), William Polley (agree)(not cited by Drezner,but well worth a read), Brad DeLong (disagree) Brad Delong (disagree), and Brad Sester (really disagree). Quite a high level discussion.
The great thing about blogs is that it really can be a two (or more) way conversation. Mr. Cowen has already posted a response to Mr. Sester here. I would expect the others will reply as well.
Comments (2)
Read through and enter the discussion by using the form at the endErik - September 8, 2006 3:06 PM
It's surely an interesting debate.
I want to seperate two different issues in the current exchange.
1) That the US should spend time micro-managing the Yuan's revaluation from
2) China's "dirty float" is a highly distortionary policy leading to imbalances in the global economy.
Setser's argument really has more to do with 2) than it does 1). Indeed, one is more a function of your opinion than actual economic fact.
Two, however, is hardly disputable. I refer you to Setser's post and his congressional testimony that should dispel any doubts that the RMB is heavily supported by PBOC intervention.
That's fine if you believe that the US "profits" from the defacto peg through cheap imports. You also could argue that the US shouldn't spend its political capital trying to have the yuan appreciate. But it is nonsensical to agree that A) the PBOC doesn't intervene to artifically inflate the Yuan (i.e, it's undervalued) ; B) This imbalance can sustain itself . Setser is making a similar point, that the RMB (according to market terms) is undervalued and eventually in conjunction with reduced US spending will have to appreciate. This does not mean that the Yuan in itself will solve the US trade deficit proble, This also doesn't mean that China should float the Yuan, nor does it mean removing capital controls, it just means the government should move to have the market play a bigger role which it has rejected to this point and time.
China Law Blog - September 9, 2006 11:35 PM
Erik --
Thanks for checking in. I did not agree or disagree with anyone. When I used "agree" and "disagree" in my post, I was referring to whether the authors agreed or disagreed with Cowen.
Does anyone really dispute that the Chinese government intervenes with the Yuan?