CHINA WATCH - WHY THE U.S.
SHOULD GET OFF ITS HIGH CURRENCY HORSE
China often gets bad press in
America, and sometimes it is deserved. But not always. Take the
controversial case of Chinese currency manipulation.
We know for a fact that it is
a fact. None other than Ben Bernanke confirmed it in his public
testimony. He told us that China’s suppression of the value of its
currency is indeed a real factor tripping up the sputtering American
We have heard this indictment
manipulation” many times
before, but often from sources not worthy of trust, or so determined
to demonize China as to be easily dismissed. But when Bernanke says
it, I have to believe it. And probably you should, too.
Our chairman of the U.S.
Federal Reserve System, bravely leaving leafy Princeton University in
2002 for Washington duty, is no academic drama queen or chintzy
Washington demagogue. He is a public servant whose stature, had fate
permitted him to head the Fed in more fortunate economic times, would
transcend that of his predecessor, Alan Greenspan, who believed all
too religiously in the inherent goodness of unregulated markets.
In publicly responding to the
China currency question, Bernanke did not toy or hide behind
ambiguity, as his predecessor sometimes did. He tried to tell it as it
is, but carefully. What he pointedly did not state the other day was
that the undervalued Chinese currency is “the” reason for our troubles
or even a “major” reason. What he suggested, instead, was that the
Chinese under-valuation is a factor that is worth worrying about, and
perhaps discussing, perhaps like adults; and maybe it would be in
China’s own interest to ameliorate the problem rather soon.
Here are the measured words,
spoken before the Joint Economic Committee of the U.S. Congress: "I do
think that China's currency policy, besides creating problems for them
– in particular … inflation … which is a result to a large extent of
their currency policy – has been to some extent preventing global
adjustment…. A more balanced growth path could be achieved if there
was greater flexibility in currencies. China's currency policy not
only affects obviously U.S.-China relations, but it also affects third
party currency policies as well."
The context of his testimony
was congressional committee consideration of a new law designed to
penalize Chinese exports via higher taxes so that when they hit U.S.
store shelves they are more expensive to buy. This presumably would
reduce Chinese sales here. The wide gap in China-U.S. trade (much
favoring China) is due to such sales, which are said to be largely the
product of abnormally low Chinese retail prices, which are the
calculated inspiration of the Chinese dollar kept artificially
down-market in its effective international exchange rate.
About which, three points
must be made:
One: The Chinese government’s
policy of currency low-price control is not designed to undermine the
American economy. Its goal is to keep unemployment down in a vast
country of 1.3 billion (if not more), by making sure as many people as
possible working like little squirrels, churning out products that the
richer people (like Westerners) want to pocket. The Chinese believe
higher prices on their goods will result in fewer sales and will
create vast unemployment in their backyard. More jobless, they fear,
will trigger mass instability.
Two: The Chinese will
dramatically change that policy when – and only when – they have
concluded that it is in their national economic and political
interest. They will not do so because of lectures that it is the
morally or ethically correct thing to do as a “responsible member of
the international community,” or somesuch….
Three: Being subjected to
lectures by American politicians makes it easier for them to say to
others in their region and elsewhere: See, this is what we are up
against! This is because the Chinese – like all governments in Asia,
and many governments in the rest of the world – are still smarting
from the grossly morally reprehensible behavior of Wall Street and its
allied banks during the last decade of economic meltdown. Nobel Prize
winning economist Joseph E. Stiglitz agrees: “Regrettably, many of the
worst elements of the U.S. financial system - toxic mortgages and the
practices that led to them - were exported to the rest of the world.”
Believe me when I say this: If we expect Asia in particular to harbor
short memories of serious Wall Street malfeasance, exported to them
with no reluctance of conscience, an unpleasant surprise may be
Even governments otherwise
loyally allied with us regard U.S. economic lecturing these days as
hypocrisy or at least memory impairment at its worst. Rather than
approach the Chinese by trying to choke them with the high moral line,
we’d be better served approaching the issue with humility or even a
touch of slightly sincere contrition. We perhaps might also remember
that they have in their bank more than a trillion bucks in U.S.
Treasury bonds that in theory they could unload at the drop of an
In the big wide world of
manipulation and deception, we are as guilty as they come. We will win
no friends – or more rapidly lowered Chinese currency – by tramping
around as if we are without significant sin.
At the same time, it may be
hoped that internal economic developments inside China will speak for
themselves – perhaps even loudly enough for Beijing to act
appropriately. For if the honorable Fed chairman is right, the Chinese
are probably hurting themselves as much as anyone.