A silly argument with serious consequences


Sino-American relations have been fragile lately as American legislators levy accusations of unfair trade practices against the Chinese government. A certain amount of anti-China rhetoric always accompanies a new White House administration – in fact, the Obama administration has had relatively peaceful relations compared to the early Clinton years. And Treasury Secretary Timothy Geithner is well versed in Chinese affairs and has done what he can to avoid labelling China an official ‘Currency Manipulator”. But inevitably, and particularly with Democratic presidents, there is pressure from unions and economic nationalists to face down the perceived Chinese beast.

Of course, an appreciated Chinese currency would drive the prices of Chinese consumer goods up, which would in turn affect importers of Chinese goods. And of course, bilateral trade deficits are meaningless, given the multilateral nature of industrial inputs. But American politicians seem more interested in pseudo-populist rabble-rousing than in opportunities for growth.

The Chinese government does freely engage in protectionism, but the best thing the US government can do is to do nothing. Divisive accusations and tariffs will only create an escalating trade war that will hurt both sides. This is particularly true because the Chinese government is eager to appear independent of foreign influence before hawkish Chinese nationalists. China is less likely to appreciate its currency or take other steps to reform if it is being chastised. Both governments would do well to keep their hands off trade. Minimising petty recriminations and provocative rhetoric will make that more politically feasible.