Paul Krugman has been arguing for awhile that
China is deliberately keeping its currency artificially weak.
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus....[a]nd in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs
Which undercuts the attempts of the rest of the world to pull out of its economic doldrums. It's not the whole story, of course, but it's a nontrivial piece of it. Krugman's recommendation is that
the United States show[] that it’s willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy.
He adds elsewhere that Europe would pretty much have to follow suit. And since imports and exports, over the world, net out to zero, and such a tariff would reduce China's trade surplus, the rest of the world would reduce its trade deficit, with more net exports translating into more jobs. And given that the austerians have won the political debate both here and in Europe over government stimulus, this is about the only avenue left for putting people back to work at something faster than a slow crawl.
Krugman has also recently pointed out that the reason commodity prices (including oil) are going up is a simple matter of supply and demand in a finite world:
and since more oil either isn't or can't be pumped out of the ground in response, prices are going up, on the commodities market and at your local gas station.
I don't doubt that Krugman's right on both commodity prices and Chinese currency manipulation. I can't find any holes in his arguments (though not being an economist myself, I'm not the best judge), but also, how often has Krugman been wrong on anything important in recent years?
Krugman doesn't suggest a solution, either in the linked column or in his blog. Allow me to put two and two together here, and point out that this is one more, even stronger, argument for a tariff on Chinese imports to offset the effects of their currency manipulation on the price of their goods.
China's economy is overheated (growing at the rate of 9-10% per year lately) because they're doing massive currency manipulation to keep the renmumble* artificially low. That's not only why their goods are artificially cheap, but it also means Chinese companies and consumers are consuming more in the way of commodities, from gasoline to meat. If we want to keep commodity prices from ramping up (and choking off our own recovery!), a tariff that undoes the effects of Chinese currency manipulation would cool their economy somewhat, reducing their consumption of commodities like oil, and giving us a hand at getting out of our economic troubles. It would seem like the tariff would now be a twofer.
Unfortunately, the Obama Administration seems to have no interest in doing anything besides wagging their fingers at the Chinese and telling them to stop it. And then not doing anything when they don't.
* I know it's the renminbi, but I couldn't resist. Sorry. :-)
