Counterparties: China – Your guide to presidential bluster

October 22, 2012

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Among tonight’s foreign policy debate topics is the vague-yet-lofty “the rise of China and tomorrow’s world”.

Much of the discussion is likely to focus on whether China should officially be labeled a “currency manipulator” for keeping the value of the yuan low, thereby boosting its exports. Romney has said he’d use his first day in office to apply this label, and would hit Chinese imports with tariffs. Obama generally isn’t in favor of naming China as a manipulator — though Treasury Secretary Tim Geithner been calling for China’s currency to appreciate for years. (Treasury is due to release a semi-annual currency report in November).

Ezra Klein has a few key bits of context. First, those who want to deem China a currency manipulator — something the Treasury hasn’t done since 1994 — are, in effect, arguing for a weaker dollar. The Obama administration, which in 2010 set a goal to double exports in five years, has been accused of having a weak dollar policy. Klein also notes that China isn’t even a particularly bad currency manipulator any more: countries like Switzerland and Israel are arguably worse.

Paul Krugman, like Klein, thinks this an odd time to harp about China’s yuan policies: two years ago, the remminibi was a “significant drag on advanced economies” but has since appreciated relative to the dollar. It’s also worth noting that the official currency manipulator label mostly amounts to merely saying “please stop”.

Keep in mind that we’ve been reading headlines about the end of the era of cheap Chinese labor for years. China’s labor costs are now as high as Mexico’s. Tariffs are also tricky: Ramesh Ponnuru points to research that the penalties Obama put on Chinese tire imports have actually cost some 2,500 American jobs.

Arvind Subramanian and Martin Kessler of the Peterson Institute think the blustery China rhetoric is a denial of new economic realities. China’s well on its way toward creating its own currency bloc:

Not only is China, by some measures, the world’s largest economy in purchasing power parity terms, the world’s largest exporter, and the world’s largest net creditor (for more than a decade), but the renminbi bloc has now displaced the dollar bloc in Asia.

If you get tired of the anti-China rhetoric, the folks at Foreign Policy have a much more thought-provoking question for the candidates:

Japan is about to replace China as America’s biggest creditor. Could you please offer us some meaningless bluster about “getting tough with Tokyo?”

— Ryan McCarthy

On to today’s links:

Narrative needs analysis: how to write about poverty – Martha Nussbaum

The airline industry spends between $7-8 billion a year taxiing between runways – Economist

Cognitive Dissonance
The CEO of AIG, sipping red wine, says his company never got a “free lunch” from the government – Jessica Pressler

McSweeney’s Econoblogging
Healthcare spending is “the source of our fiscal problems” – Robert Dittmar

Popular Myths
“The importance of uncertainty remains… uncertain” – FT Alphaville
The fiscal cliff would cut the deficit by $720 billion in one year, but even deficit hawks hate it – WaPo

The Greg Smith Files
Are Greg Smith’s broad, unspecific complaints about Goldman Sachs believable? – Dealbook
Greg Smith’s book mostly rehashes “scandals already litigated in court and the public square” – Matt Levine
Fact-checking Greg Smith’s ping-pong skills against pro competition – Fortune

Corporate Largesse
“You’re paying a partner $800 to $1,000 an hour and they’re charging you because they ordered sushi” – WSJ

Glenn Hubbard: Obama has failed to manage the Fannie and Freddie – Mike Konczal

Easing Ain’t Easy
We’re at the end of very low rates, but not at the end of low rates – The Basis Point

Data Points
Vegetables will make you happier, says science – NBER

Mike Bloomberg wonders if Elizabeth Warren would “bring socialism back, or the USSR” – NYT

Financial Arcana
Forex speculation is dwindling – Bloomberg

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