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Joseph Stiglitz today takes on the blame-China crowd and puts what’s at stake forcefully and simply:

To understand what is at stake, a few basic economic points need to be spelled out. First, international trade is based on the principle of comparative advantage: countries export goods in which they have a relative advantage and import goods in which they have a relative disadvantage. America now has a relative disadvantage in manufacturing, while China has a relative advantage. China should be exporting manufactured goods to the US.

Second, if a country invests more than it saves, it will need to borrow, and the counterpart to that borrowing is a trade deficit. America’s burgeoning trade deficit is a result of Bush’s unprecedented mismanagement. Tax cuts that the US could ill afford turned a huge fiscal surplus into a massive deficit; rather than saving, America is borrowing, much of it from abroad. That - not China’s exchange rate policy - is the culprit.

In fact, China’s overall trade surplus today is small, around 1% of its GDP. Of course, the Bush administration wants to shift the blame, but neither China, nor anyone else, should be fooled.

Of course, the Bush administration is not the only one harping on the China exchange rate; in many ways they seem to be responding to Lieberman and other Dems’ latching onto the issue. Meanwhile, Brad DeLong weighs in with some more technical considerations:

Does George W. Bush think that U.S. employment will rise significantly if Japan and China float their currencies? Have Greg Mankiw and John Taylor neglected to tell him about the J-Curve–that for the first twelve to eighteen months after a devaluation the trade balance worsens? Have they neglected to tell him that whatever longer-run effects changes in exchange rates have on employment can and usually are offset by shifts in the Federal Reserve’s monetary policy? Have they neglected to tell him that even if the Federal Reserve does not react–that even if the Federal Reserve makes like a potted plant–that a 30% rise in both the yen and the renminbi would reduce the unemployment rate by only 0.2%?

What both Stiglitz and DeLong provide is more evidence that as much as much as the Bush administration and conservative commentators harp on about Leadership capital L, the administration’s performance in the arena of economics alone suggests a craven approach to guiding the nation through tough times economically: refusing to face up to domestic problems and blaming the Chinese. I’d like to think the Democratic politicians of national stature - including the presidential candidates - would step up to the plate on this. And yes, they do see the folly of the Republicans’ fiscal policy, but their protectionist and mercantilist instincts are clouding their credibility a little.