Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
What is the real reason why the Obama administration won't do anything about China?
In a piece that extols Obama's trade policy, and recognizes that Chinese mercantilism is hurting the United States, the Washington Post excuses Obama's decision to do nothing, except talk, because of the danger that China might find "effective ways to retaliate." What retaliation are the Washington Post and the Obama administration afraid of?
1. Less exports to China? We recommend placing a tariff that would be kept proportional to our trade deficit with China. Such a tariff would increase American exports to China by forcing a change in China's policy.
2. Higher U.S. Interest Rates? China could take money out of U.S. Treasuries and put them into U.S. stocks, which would result in higher U.S. interest rates. The higher interest rates would cause Americans and foreigners to put their money into U.S. Treasuries, but higher interest rates would indeed result. At the current almost-zero interest rates, Americans can't make any money from their savings. Slightly higher interest rates would be a good thing.
3. Crash the Dollar? A dollar crash would have several bad effects, including very high inflation, very high interest rates, and a lower U.S. standard of living. But the Chinese would be hurting themselves by doing so. Their more than $1 trillion in loans to the United States would become nearly worthless should the dollar crash. Also crashing the dollar while the U.S. still has lots of industry left would get the United States out of the depression with American industry out-competing Chinese industry in world markets. Although the Chinese can crash the dollar, they are unlikely to do so until they have finished stealing our industries and have gotten their loans to the United States guaranteed by the IMF. If we don't respond to Chinese mercantilism, the eventual dollar crash becomes inevitable.
4. More Support for America's enemies? China is blocking sanctions against Iran. They are supporting genocide in Sudan. They are supporting the nastiest regimes possible in Burma and North Korea. If we antagonize China on trade, they could encourage even more provocative actions by our enemies.
5. China might withdraw affection? Some people want everybody to love them. If America is nice, they think, then everybody will be nice to us. They like having discussions and discussions and more discussions, as a chance to prove that they have everybody else's interests at heart. They want to be appreciated as enlightened internationalists who put the good of the group above their own good.
Which reason do you think is true? Did I leave one out?
Journal of Economic Literature:
Atlantic Economic Journal: