For mercantilists an oft repeated claim has been that China’s cheap currency equals US trade deficit. From such premise they advocate the policy recourse of protectionism
How valid is this?
From the Economist (bold highlights mine)
“the recent relationship between China's currency and America's trade deficit with China is not what China hawks in the Senate think it is. Rather than a cheap yuan leading to a flood of Chinese imports, the yuan has actually strengthened as the deficit has widened. There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on. However the place for fixing these things is the World Trade Organisation, not Congress. President Obama's administration has already passed on two opportunities to label China a currency manipulator, out of a well-founded fear of sparking a trade war.”
Cheap currencies and export might is a post hoc ergo propter hoc fallacy. Having to hyperinflate their local currency in 2008, Zimbabwe should have been today the world’s premier exporter.
Next, relative currency values are just one of the many variables that affect trade. Among the other variables are specialization, proximity to markets, market niches, transaction costs, political and legal institutions, access to and quality of labor pool, taxes, and etc. etc. etc...
But for mercantilists the world can be seen only in the prism of reductio ad absurdum
Mercantilism has never about the truth, but about getting elected or or about imposing political control over others or about social signaling.
No comments:
Post a Comment