Dig the cover of this week's Economist on rising "China-bashing" sentiment Stateside. I may not always be 100% on board with this magazine, but they sure do make great covers once in a while! I am sorry that some of the articles are pay-per-view, dear friends, but I will repeat the main points here. As to what I believe they got wrong, I will make brief comments on why I think they're so. If your interest is piqued by these points, do head over to your local newsstand and pick up a copy of this week's edition. It's well worth a read even if, like me, you disagree with a fair number of premises:WHAT THEY GET RIGHT
- Nothing will likely happen as the second round of the (so far lame-o) Strategic Economic Dialogue between the US and China heads to Washington May 22-3;
- The bilateral deficit is more about America's lack of savings than China's undervaluation of the yuan;
- A yuan revaluation alone will do little if anything to correct the trade imbalance;
- An all-out trade war is unlikely because we've got a rule-based WTO now;
- "China is a scapegoat for broader economic anxieties to do with stagnant wages, rising income-inequality and dwindling health and pension benefits" in the US;
- "Comprehensive health-care reform to create a system where all Americans have access to portable health insurance would do a lot to reduce workers' anxiety and equip them for an economy that these days demands frequent job shifts";
- "A revaluation could also help the government succeed in shifting the balance of growth away from investment and net exports towards consumption";
- "And as with all dictatorships, there is the need to seem tough. With the five-yearly Communist Party congress only months away, China's president, Hu Jintao, cannot be seen to be bowing to American pressure on the yuan or anything else."
- The US-China $232.5B bilateral trade deficit is exaggerated because half of that amount consists of China serving as a way station in the processing trade. Technically this likely is true, but China's non-processing exports are rising more quickly than processing exports (figure 3) and so are non-processing imports than processing imports (figure 4). The figures below are care of the World Bank Beijing office's recent report;
- China can't allow its currency to drastically revalue because it needs to provide employment to those moving from rural to urban sectors. Actually, Chinese industrial employment has remained fairly steady as a percentage of the workforce because productivity increases have kept industrial labor demand fairly contained--hence growing inequality there;
- "The case against China is even weaker than the one against Japan was [in the 80s]" You can't have it both ways, Economist. There is now a WTO that officially frowns on IP violations, subsidies, and the like whereas there wasn't one in the 80s;
- Intellectual property rights violations are peanuts in the overall scheme of things. Ditto;
- Those American consumers simply don't appreciate the benefits they gain from having a China supplying goods at lower prices. Try selling that to regular Joes and Janes instead of elite policymakers. Public perceptions still matter in democracies, methinks.
