Tuesday, April 6, 2010

Stiglitz Says Chill Out on China

At Project Syndicate, Joseph Stiglitz argues that it would be counterproductive for the US to confront China over the exchange rate. He concludes:
Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution. Imposing unilateral duties after unilaterally labeling China a “currency manipulator” would undermine the multilateral system, with little payoff. China might respond by imposing duties on those American products effectively directly or indirectly subsidized by America’s massive bailouts of its banks and car companies.

No one wins from a trade war. So America should be wary of igniting one in the midst of an uncertain global recovery – as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere. Unfortunately, this global crisis was made in America, and America must look inward, not only to revive its economy, but also to prevent a recurrence.

Though he doesn't name names, he clearly seems to be answering Paul Krugman's recent column on the subject (discussed in this earlier post).

Update: Krugman responds.

Update #2: See also Martin Wolf, who agrees with Krugman.

1 comment:

Anonymous said...

Frank the salesforecaster says:

Currency pegs have costs and benefits for both of the countries involved in the peg. China has a large negative carry on the dollars it has "borrowed" out of its economy (extracting money from a fast growing economy and reinvesting in a slow growing economy is expensive.) China also pays more for dollar priced commodities than they would under a floating currency regime. The US loses manufacturing jobs while gaining financial services jobs (ever dollar of deficit in goods is a dollar of surplus in investment goods.) This is a good trade-off, particularly for a population with an increasing rate of educational attainment. We needed more nice clean good paying white collar jobs, and financial services employs both the well connected and the well educated. So yes, chill out on China.