Economist Paul Krugman says it’s clear that China is pursuing a mercantilist policy by keeping its currency weak through a combination of capital controls and intervention — a policy that leads to trade surpluses and capital exports in a country that might well be a natural capital importer.
“We also know, or should know, that this amounts to a beggar-thy-neighbor policy — or, more accurately, a beggar-everyone but yourself policy — when the world’s major economies are in a liquidity trap,” Krugman writes in The New York Times.
Though the Chinese surplus was temporarily sidetracked by the global economic collapse, expert projections say it to be 0.9 percent of gross world product for 2010-2014.
“So we’re looking at a negative impact on gross world product of around 1.4 percent,” Krugman says.
“And if we think of the United States as bearing a proportionate share (using the rule of thumb that 1 point of GDP equals 1 million jobs, we’re looking at 1.4 million U.S. jobs lost due to Chinese mercantilism.”
Protectionism could be a problem for China next year, The New York Times reports, as the low exchange rate for China’s currency could be considered an unfair export subsidy which lures American consumers into overspending.
Some economists are already arguing that Chinese currency inaction justifies tariffs for the sake of balancing trade.
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