Good idea or insidious threat?
When an economy has trade leverage, the threat of discriminatory duties need not be simple protectionism.
"The US can help China make the necessary adjustments toward a reduction in imbalances by adopting a uniform tariff of 10 per cent on all Chinese imports, based on their values when they enter the US. Six months after the establishment of this tariff, the rate would increase by one percentage point a month until the Chinese trade surplus with the US declines to $5bn a month." Extract from FT.com / Comment / Opinion - Tariffs can persuade Beijing to free the renminbi
But who, other than China, would loose if this idea worked and the Renminbi was revalued? Most of the rest of the world. Especially economies with a comparative advantage in agricultural production (Australia, New Zealand, Latin America) for whom imported Chinese deflation of manufactures prices offsets the EU's depression of agricultural prices (and inflation of manufactures prices).
In principle, too, everyone would loose from another U.S. defection from the core multilateral trade rules. But perhaps you could make the case that this kind of extraordinary action (like the 1980's Nixon Administration 'shocku' blow against Japan) doesn't really impact the rules.
Posted on 12/08 at 05:46 PM.
Your comments
China Watcher
How would ag exporters lose? Lowering the RMB price of ag imports should raise sales, not lower them. Raising the dollar price of Chinese exports should help rationalize China’s irraional use of land and water.
The central issue for the trading and monetary systems is that a large country like China that practices state capitalism is simply outside of the ambit of “normal” international rules. The IMF cannot deal with China’s blatant disregard of Art. 4 obligations. The WTO cannot deal with China’s massive subsidies, state ownership and state influence over the allocation of almost everything.
It would be good for Australians, ag producers in particular, to pay more attention to the systemic crisis and less to their short-run sales and profits.
The impact of a higher valued RMB would normally be to lift consumption from imports; that’s true.
But China is a major producer of meat, grains and horticulture that is at almost self-sufficient, in most years. It has never come even close to filling the import quotas for grains that it agreed when it joined WTO.
It needs some CGE modelling; but my guess is that lower RMB prices for imports (say 15%) are not likely to see big changes in China’s agricultural imports; certainly not in commodity products.
In fact, one consequence of a higher RMB will be to slow the movement of resources into the export/manufacturing sector and probably to lift agricultural production. China will be more self-sufficient; domestic production more competitive.
China Watcher
Don’t mistake China for a market economy. The Party, not the market, will heavily influence decisions on resource allocation. Sure, more commercial agriculture lies ahead for China, but there’s no great incentive for the government to race forward in that regard as the surplus labor problem would only be aggravated by productivity gains.
Moreover, China is running out of water. That’s an issue not just for agriculture but also for steel and golf course development.
Finally, China has one million food processing plants and no ability to inspect them nor ensure their quality.