Who pays for China’s success?
New York Times: China’s economic strategy over the past two decades has been remarkably successful. By opening its doors to foreign investment and manipulating currency markets to keep the renminbi from rising against the dollar, it hitched itself to consumers in the industrial world and achieved spectacular growth.
While the strategy is still working for China, it is exacerbating economic weakness around the globe. If China keeps it up, other countries are likely to use their last available weapon — protectionism — to stop the onslaught of artificially cheap Chinese goods. A trade war is easy to start and hard to contain. It could hit everybody’s exports, disrupting growth everywhere.
If China continues its beggar-thy-neighbor currency policy, it will make it even harder for countries and the global economy to revive. As overextended governments wind down their fiscal stimulus, many economies will have to rely on exports as a crucial source of demand while their consumers restructure their sorry personal finances.
If it sticks to its cheap-renminbi guns, however, it is bound to draw a protectionist response. The Obama administration already has caved to political demands and slapped exceptional tariffs on Chinese tires and antidumping duties on steel pipes. Congress has been uncharacteristically quiet, but patience is wearing thin in Washington and everywhere.
India has filed a stack of trade complaints against China. And the Asia-Pacific Economic Cooperation forum recently urged the adoption of “market-oriented exchange rates” for Asian currencies, a reference to China’s manipulation.
A trade war with China would be disastrous and bound to escalate around the world. Restraint is needed. But we fear no one is going to feel restrained if China doesn’t change its strategy.