It’s early in the campaign, but one of the most distressing sign is the return of retrograde, if not downright protectionist, trade policy from just about all of the Democratic candidates. Offender number one, of course, is Howard Dean, whose brash calls for tearing down the WTO and requiring international labor standards the same as the U.S.’s seems myopic at best (what if Europe insisted that American workers got 5 weeks vacation before they’d accept our goods?!). The Washington Post has an editorial taking him to task on this, and it’s not even nearly harsh enough. Apparently Robert Rubin approached Dean on the issue:
He allows that former treasury secretary Robert Rubin told him: “I can’t sell you on Wall Street if this is your position” on trade. But the former governor apparently can live with that. “I said, ‘Bob, tell me what your solution is.’ He said, ‘I’ll have to get back to you.’ I haven’t heard from him.”
Well, I find it hard to believe that Rubin doesn’t have a position on trade, but if for some reason he doesn’t, we can certainly point to some folks who do.
But Howard Dean isn’t the only candidate talking this way. Take Edwards, who is talking about revising tax law for protectionist reasons. And Gephardt, who has always been a protectionist, and is campaigning on his international minimum wage proposal. And even the centrist New Democrat Lieberman has taken up the issue of the Chinese yuan, which he and others claim is undervalued and cutting into American jobs.
Of all the proposals, forcing China to float their currency is the oddest and most obscure (therefore of interest to Marxists for Keynes!) proposal on the table. On the face of it, it would seem simple: the yuan is pegged to the dollar, and the differential seems to be encouraging a U.S. trade deficit with China, as our manufactured goods are undercut in price and our debt is ending up in Chinese foreign reserves. But there are several problems with this logic. For one, there are the practical considerations: how is the U.S. going to make China change its fixed currency policy? By telling them to? China has every incentive to keep the currency the way it is. It reminds me of politicians promising to get with OPEC but not recognizing that these are sovereign nations with good reasons for doing what they do.
Which brings up a second point, that China’s behavior hasn’t been all that bad. They’ve been pegged at the dollar at the same rate for a long time, so the American manufacturers can’t blame them of sudden and devious behavior. In fact, the yuan was high when the dollar was high, and China’s steadfastness during the Asian currency crisis added stability to the region. Americans were happy not to have a floating yuan then.
A third point is that every economic trend tends to have an opposite trend that counterbalances it: cheap Chinese exports cost American manufacturing jobs, but they also give cheaper goods for American consumers and thereby raise real wages for American workers. Or, to take another example from one good essay on the subject,
the Chinese government policy of buying heavily in the U.S. debt market has contributed to much lower interest rates than would otherwise prevail. These low interest rates have been instrumental in keeping the U.S. economy from falling further and faster, including stimulating the aforementioned boom in housing.In other words, public policies formulated in Beijing have actually been beneficial to the U.S. economy.
Clearly, China is serving as the scapegoat on the American political scene from all sides - left, right and center. However, China is not the problem. We’re losing jobs because of three fundamental reasons: 1) the business cycle is down now, aided by poor fiscal policy; 2) our willingness to take on debt has meant a capital account deficit, which necessitates a trade deficit (if it wasn’t China, it would be with someone else, or else we’d have to have lower levels of consumption); and 3) global trade has meant that our economy is shifting from manufacturing to information sectors - this hurts a vulnerable blue-collar population, but certainly we can come up with better political resources from those workers than tarriffs and “tough” talk.
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