Paul Krugman comments on An Issue Whose Time Has Passed written just prior to the debate on foreign policy between Romney and Obama.
Chinese currency manipulation may come up in tonight?s debate ? and as someone who wanted the US to take a tougher line back in 2010, I guess I should weigh in.Odd Times Indeed
Basically, as Ezra Klein says, this is an issue whose time has passed.
In 2010 an undervalued renminbi was a significant drag on advanced economies, including the United States. Since then, however, two big things have happened: relatively high inflation in China, and some appreciation of the renminbi against the dollar. As a result, the real exchange rate of China against the United States (based on consumer prices), has appreciated significantly:
At the same time. China?s surplus has come way down:
The conclusion of Krugman's article is most amusing.
Krugman stakes out a claim that Romney's position is based on politics: "This is an odd time to be making confrontation over China?s currency a centerpiece of your economic policy ? unless, of course, it?s just bluster aimed at making voters think you?re tough."
On that score, Krugman may very well be correct. I can even spell out the politics in four simple characters "OHIO".
However, it is also possible Romney is not the economic wizard most Republicans think he is.
Certainly, when it comes to trade, Romney is no conservative or even a moderate. Rather Romney has staked out a claim that has union "progressives" cheering. Either he is a free-trade dunce or he is playing politics. I leave it to the reader to decide.
Amusingly, this seems to be an equally "odd time" for Krugman and Klein to come out of the blue to be more tolerant of free trade. Had Obama been threatening to label China a currency manipulator and Romney supportive of free trade, would Krugman and Klein have chimed in?
An Idea Whose Time Never Was
I seldom agree with anything Klein writes but his Washington Post article Five Facts You Need to Know About China?s Currency Manipulation is well written and basically but not entirely correct.
My problem with this debate is simple: free trade is always a good idea. It was a good idea in 2000, 2004, 2008, and now. There was never a good time to start a trade war with China.
Also note that Klein and Krugman are merely way more tolerant of free trade, not exactly free trade advocates.
In Praise of Cheap Labor
In Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All? I laid out a claim why free trade is always good.
Please read the article if you haven't already, it contains a nice surprise in regards to my stated position.
In that article, I also asked another question "Are Paul Krugman and Mitt Romney On the Same Page?" On that score I erroneously concluded they were. Apologies offered to Paul Krugman.
Half-Right Better Than All-Wrong
Even though free trade is always good, at least Krugman and Klein see no compelling reason to start a trade war with China now. Romney on the other hand does.
Thus, (politics or not) the current positions of Krugman and Klein are far more reasonable than the pro-union position of Romney.
Whether Romney hopes to appease Ohio union voters or he is a free-trade dunce, the essential point is Romney is simply "all wrong" when it comes to China.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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