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Home Publications Blogs Beat the Press Arghhhhhh! China's Desire to Slow Growth is Good News for the U.S., Not Bad

Arghhhhhh! China's Desire to Slow Growth is Good News for the U.S., Not Bad

Friday, 05 August 2011 05:02

Ezra Klein is one of the more knowledgeable columnists writing on economic policy today. He puts the rest of the Washington Post team to shame. But he gets it wrong in a really huge way in his front page column today.

He says that China's desire to slow its economy means that there will be no engine for economic growth in the world. This is 180 degrees wrong. If China wants to slow its economy because it is worried about inflation, then the simple textbook method would be to raise the value of its currency against the dollar.

This has two effects. First, it makes imported goods cheaper for people living in China. That will slow inflation. Second, a higher valued yuan will lead China to import more from countries like the United States and to export less. This will reduce demand in its economy and slow growth.

And the flip side of this story is -- that's right, the U.S. exports more to China and reduces its imports, leading to an improvement in our trade balance and a boost to growth. In other words, the fact China wants to slow growth means that they should be very happy to increase imports from the United States. We should be worried if the opposite were true; if China, like the U.S., Japan, and Europe desperately needed to increase demand, then we would face more of a problem.

(I am going to ignore the fact that Ezra called me "no one.")

Comments (2)Add Comment
written by kharris, August 05, 2011 12:57
But, but, but...you're just pretending that what you want to say has anything to do with what Klein wrote. If China slows, it's bad for US exports UNLESS China lets the yuan strengthen. Klein didn't says otherwise, 'cause he didn't mention the yuan. If China aims to slow by reducing the growth in its exports, it's good for the US to the extent that US producers take up the slack, but we have no indication China is aiming specifically at slowing export growth, or that there will be any slack to take up, given that the US is slowing to.

Pretending that the other guy said something wrong so you can make a point you'd like to make by pretending to correct him is pretty silly, and you seem to do it more all the time. Is there so little bad economic writing that to keep yourself busy, you have to make up faults where there are none?
written by jamdox, August 05, 2011 5:50
BUT based on past behavior it looks like the Chinese aren't going to appreciate their currency, they're raising reserve requirements and interest rates while persisting in currency manipulation. So they kill their demand AND keep exporting.


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.