Schizoid trade policy?

What’s going on? Last week the U.S. Trade Representative Rob Portman unveiled a comprehensive review of U.S.-China trade relations and our policy toward the Middle Kingdom. The report acknowledges the many benefits that flow from trade with China. It also announces new steps to strengthen our ability to monitor and affect China’s compliance with intellectual property laws and WTO rules. So far, so good. The report even stays away from the contentious issue of the supposedly undervalued Chinese currency, the yuan. The word “yuan” is not even mentioned in the long report. I thought this was a real breakthrough in U.S. policy toward China, showing a more nuanced and sophisticated view of the relationship, one that might actually get results Read More ›

Mundell’s latest on China

Nobel prize winner and China expert Robert Mundell continues to be optimistic about the Chinese economy but now also believes the U.S. has stepped down its intense pressure to appreciate the Chinese yuan. Good news all around. -Bret Swanson

China’s trade DEFICIT

China today announced a large $102 billion trade surplus for 2005, triple last year’s total. But wait. Excluding its $114.7 billion trade deficit with the United States alone, China actually ran a modest trade deficit of almost $13 billion with the rest of the world. We’ve been predicting this development all year. China’s consumption of consumer and capital goods is growing fast. According to a recent “economic census,” the nation’s first ever, its domestic services economy is one-third larger than previously thought and accounts for over 40 percent of GDP. These numbers are just one more factor showing that China has not been “manipulating” its currency, the yuan, to gain unfair advantage in international markets via a singular focus on Read More ›

Yuan yawn…Status quo for now…

When the biggest two news items during President Bush’s China trip were his bike ride and his attempt to exit a locked door, it’s clear any contentious conversations happened, well, behind that locked door. This is good news, especially on China’s currency, the yuan. Both the U.S. and China reiterated their basic views, without directly contradicting the other side. President Bush said in his press conference with President Hu Jintao that “We’ll continue to work with China to help implement its July commitment to a flexible, market-based currency.” But Yi Gang, an assistant central bank governor, said that “China would keep the yuan basically stable….” The status quo of stable exchange rates is good for now, though at some point Read More ›

What will Bush say on Chinese Yuan?

Although Mao Zedong’s presence still superficially dominates the main public space here in Beijing–his mausoleum at one end of Tiananmen Square and his portrait guarding the Forbidden City at the other–almost everything else in China’s capital city refutes Mao’s life, legacy, and ideas. Once ubiquitous, gray and brown Mao jackets have now been utterly replaced by a new national garment–colorful North Face ski jackets. The other place you’ll see Mao is on all the money, known as yuan or renminbi, or simply RMB. Hundred-yuan bills, 50s, 20s, 10s, ones–it’s all Mao. The irony is that Mao was not, shall we say, a terrific economist. Yet for the last 27 years, China’s management of its economy and this massive transformation of Read More ›

Andean Free Trade Agreement would spread harmful regulation

Word is the U.S. Trade Representative is prepared to capitulate to a South American country that wants to regulate mobile phone service like a state-owned monopoly. Colombia is pushing the plan, which flies in the face of all the available evidence that wireless is as competitive as you can get, and is contrary to recent Free Trade Agreements with Chile, Singapore and Central America. Colombia wants language included in the Andean Free Trade Agreement defining CMRS as a “major supplier” that should be subject to confiscatory regulation that was in vogue at the FCC in the Clinton years. Bureaucrats at USTR reportedly like the idea.

Buying Time in China

The Wall Street Journal notes Monday that “U.S. Treasury Secretary John Snow struck a surprisingly conciliatory tone after talks with China’s top economic leaders,” and that his comments “seem to put to rest speculation that the administration of U.S. President George W. Bush might declare China a ‘currency manipulator’ in a coming report as many in Congress are demanding.” This jibes with our view, expressed yesterday, that the chances of a continued high-intensity currency and trade battle have diminished. The Journal also notes, however, that “Mr. Snow’s new stance could draw increased opposition from Congress, where a number of lawmakers are threatening to impose large tariffs on Chinese imports unless Beijing lets the yuan appreciate more sharply.” The Treasury and Read More ›

Snow in China: The Latest

Has John Snow’s China trip turned from expected blizzard to a light dusting instead? Secretary Snow and other U.S. Treasury officials in China are attempting to broaden their message beyond criticism of a supposedly undervalued yuan. Snow has spent the last few days urging China to modernize its financial, credit, equity, debt, and commodity markets. This is all fine advice, as far as it goes. China knows it must establish advanced financial institutions, markets, and services. It wants to do so. It is doing so. The process is already well underway, with functioning stock markets in Shanghai and Shenzhen, a new commodities market about to open in Shanghai, and rapidly developing consumer credit and mortgage markets. Of course, many interior Read More ›

Hu’s the Supply-sider Now?

U.S. Treasury Secretary John Snow is in China for a nine day visit. But which nation’s leader is offering supply-side economic advice? If you guessed Chinese President Hu Jintao, you are correct. Citing evanescent “imbalances,” Snow continues his calls for de-linkage of the yuan from the dollar and subtly still pushes for a major yuan appreciation. The U.S. thus inexplicably continues its weak dollar currency policy. Hu, on the other hand, believes that “All countries, major economies in particular, should keep major currencies reasonably stable and prevent trade protectionism.” Bingo. Over the past decade, the dollar-yuan link has been a key source of growth and stability not only for the U.S. and China but also across the global economy. China’s Read More ›

Hu’s Trade Gap?

President Bush’s meeting with Chinese President Hu Jintao today in New York and their newly agreed-to meeting in November in China suggest China is on the White House radar, as it should be. Asian economic policy should be right at the top of the Washington’s policy list (there’s also this small matter of potential North Korean nukes). But why is the White House still obsessing over the “trade gap” with China, browbeating assurances out of Hu to reduce the trade gap by buying more American goods? Where to start? First, the trade gap is an accounting identity and implies a capital surplus. We buy lots of stuff from China, send it dollars, and China invests in American assets. The American Read More ›