Marching Towards a Trade War

The great China tariff bill of 2010 was passed by the house.

I first got the news from Yves Smith, who I very much enjoy reading, but who doesn’t seem to have done her homework with regards to China. From Smith:

Everyone understands that for China move to a more consumption-driven economy is a very long term project.China could get away with a ton of foot dragging if it were taking legitimate steps in that direction, as it needs to. So far, however, it has demonstrated no commitment to that effort,so it is effectively exporting goods and related unemployment to other countries. In a period where everyone expects protracted low growth, when there is already a large overhang of unemployed workers, that will not wash. Other countries start retaliating on the trade front. (my italics)

This is blatantly false, and frankly a little irresponsible. In the past three months China has allowed Hong Kong banks to take yuan deposits, has begun encouraging foreign countries to hold yuan reserves, and has been systematically lowering the barriers to trade in yuan. The slowdown in the appreciation of the RMB recently is largely accredited to the collapse of the Euro and not a “head fake” as Ms. Smith claims in another paragraph. Basically the debate in China has very concretely turned from “if” to “how,” as it should.

I’m not saying China couldn’t do more; it can and it should do more. But given what I’ve read thus far coming out of America, I don’t see anything short of a complete flotation that would make an election year congress happy, which, as Ms. Smith points out, no one thinks is realistic at this point. And without concrete proposals on the American side, the accusations of China bashing that people over here like to hide behind seem largely credible.

I do believe there is a solution here, that doesn’t entail a hatcheting of the world’s most important trade relationship. Lets all talk about that for a while instead of blindly marching into war.