Campaign for America’s Future co-director Robert Borosage, in a recent article, unfortunately joins the protectionist chorus targeting China as the source culprit in the Great Recession, adding some classic Reagan/Bush type embellishments and familiar economic arguments. The accusations run as follows:
1. China manipulates its currency by setting it to a (nearly) fixed ratio to the U.S. dollar. This, it is alleged, assists China in selling products to the U.S. and others at below their real value. The allegation is based on the premise that China’s economy is growing faster than the U.S. economy, its productivity is rising faster, therefore its currency should be rising relative to the U.S. dollar, instead of staying fixed. If the Chinese currency rose relative to the U.S. dollar, its exports would be more expensive, and the trade deficit would narrow, presumably fueling more domestic production in the U.S.
It’s true that exports have played an important role in China’s extraordinary growth ever since Deng Xiaoping initiated the unique mixed socialist and market-oriented system that has dominated China for over 30 years now. The economic growth this mixed system has generated is unprecedented in modern times, especially considering it takes place in the world’s most populous nation. And, unlike the U.S., the living standards of Chinese workers have steadily risen – so much so that China is almost single-handedly responsible for net world poverty levels falling in recent years.
It’s also true that most economists think China’s currency is somewhat undervalued. However it is difficult to see how a vast nation trying to restructure a poor, mostly subsistence-agricultural, economy into an industrial one, and simultaneously striving to deploy advanced technologies, can avoid a well-directed export sector. In addition China is now using its reserves from exports not only to finance U.S. debt at low interest rates, but also to buy commodities necessary to sustain its growth to meet the needs of its expanding population. It is not just paying off corrupt dictators. China has been notably reluctant to interfere in the internal affairs of other countries. It is making strategic investments promoting long-range sustainable growth in the nations that possess these commodities. China’s overall trade accounts are actually quite balanced, even though it maintains a large surplus with the U.S.
Apprehensions about an overheated economy, and a desire to stimulate domestic demand, will likely compel China to soon revalue its currency. The term “mercantilism,” used by Borosage to describe only Chinese surpluses acquired from trade, merely suggests envy.
2. Borosage expressed an inexplicable animus toward China’s industrial policies giving support to strategic industries. Given the perilous shape of the U.S. infrastructure, and the deepest depression since the 1930s – why isn’t he, instead, calling for our own leaders to do likewise? Is there any confidence among the workers of this country that Wall Street or unregulated markets are going to restore U.S. prosperity? Or decisively develop a green economy? Or develop a national high-speed rail system? Or reverse the long downward trend in working people’s take-home pay? I don’t think so.
3. China’s economic polices caused the 2008-09 financial crisis. Huh? No mention of banks? Financialization? Here Borosage “ducks” instead of confronting, as he has ably done otherwise, our difficult but essential obligation to bring our own financial system under public control and construct our own pillars of progress!
4. China is a communist dictatorship? My response to this is: “And … ???” I suppose, if I were Chinese I might agree that dictatorship, communist or otherwise, is not a sustainable political system once a certain level of development is attained. But is it really time to resume the Cold War?
5. China is a “rogue nation.” In the new economic environment arising out of the Great Recession, it is the countries without industrial policies, not those with them, that are more likely headed to increased instability and uncertainty, to taking truly “rogue” paths such as those advocated by the ultra-right.
I find no fault with debates over the wisdom of WHEN China should modify its exchange rate. But heading off into an anti-China campaign goes nowhere. The truth is that the Chinese and American economies are enough entangled with each other to almost be called a marriage. We are stuck with each other. We should take the road of counseling to improve relations – not the rhetoric and ill will of divorce.