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Home Publications Blogs Beat the Press The Moment of Truth: Post Tell Readers We Should Only Care About Business Concerns

The Moment of Truth: Post Tell Readers We Should Only Care About Business Concerns

Thursday, 12 April 2012 05:06

There have been many people who have suggested that the Washington Post has a pro-business bias. The Post seemed to confirm that view in a piece on Mitt Romney's agenda for his first day as president.

It noted that Romney said he would demand that China raise the value of its currency as one of his day one items. It then told readers:

"But some China experts say Romney would nevertheless be risking a backlash from the Chinese — over an issue that is not a top priority.

"In a recent survey of the concerns of American businesses working in China, currency ma­nipu­la­tion was only the 26th-biggest worry.

"'You can’t go to the Chinese and say, "I demand eight fundamental changes!"' said Derek Scissors, a China expert at the conservative Heritage Foundation. 'You’ve got to pick your thing.'"

Of course Scissors' assessment is exactly right. The United States cannot simply make a set of demands on China and expect the Chinese government to accept them. It must prioritize its demands and be prepared to make concessions on issues of concern to China.

The Post implied that because the over-valuation of the dollar against the Chinese currency is not a major concern of business it should not be a concern to the United States. This only makes sense to someone who believes that the concerns of business should be given a priority over the concerns of the rest of the country. In fact, there is a clear opposition between the interests of many, if not most, businesses and the rest of the country on dealings with China.

According to mainstream economics, the main mechanism for adjusting a trade deficit is reducing the value of a currency. In other words, anyone who wants to see the United States move towards more balanced trade should want the dollar to fall.

(The Post should be in this camp, since it has endless tirades about the budget deficit. By definition, a trade deficit means that a country has negative national savings. Negative national savings means that either the public sector has a deficit or the private sector does, as we did in the housing-bubble years because of huge over-building and a bubble-driven consumption boom. Anyone who views those options as unattractive would want to see the trade deficit come down, if they understood economics.)

More balanced trade would create millions of new manufacturing jobs. (If we balanced trade, manufacturing would add close to 5 million jobs.) This would create a situation where ordinary workers would likely be able to push up their wages and again share in the benefits of productivity growth.

While that would be great news for most workers, it would not necessarily be positive for businesses who might see their profits diminish. It would also not be good news for higher end professionals like doctors, lawyers, and CEOs who are largely protected from international competition themselves. The higher wages received by workers will be passed on to them in the form of higher prices for many of the goods and services that they buy. Their trips abroad would also be more expensive.

In addition, many businesses like Wal-Mart have worked to establish low-cost supply chains in China and other developing countries. These businesses will be badly harmed if the cost of the goods they import rises by 15-20 percent.

Also, many businesses want China to make concessions in other areas that benefit them but don't help the U.S. economy. For example, Pfizer and Microsoft want China to increase enforcement of intellectual property. Goldman Sachs wants more access to China's financial market. These concerns would have to be put on the back burner if a U.S. president ever got serious about demanding that China raise the value of its currency.

In short, there is a clear conflict between business interests in China and the interests of the rest of the country. The Post told readers that they should only be concerned about business interests.

Comments (4)Add Comment
What's Good for GM?
written by Ron Alley, April 12, 2012 7:53
The Post would like to return to the sentiment of the '50's -- What's good for General Motors is good for the country. It's a simple, knee-jerk sort of reasoning requiring little disciplined thought.

My thought is whether the Post would prefer an update of that sentiment -- What's good for Goldman (or perhaps Bain Capital) is good for the country.
written by skeptonomist, April 12, 2012 8:35
If the survey only asked "American businesses working in China" about currency valuation of course reducing the value of the dollar would not be a priority; in fact such businesses may favor increasing the dollar's value. Those businesses are most likely in China looking for cheap labor so that they can make more money selling products in the US and other rich markets, rather than trying to sell American-made things to underpaid Chinese workers. The businessmen who would favor a cheaper dollar are those American manufacturers who still use American labor. It seems that the American businessmen who want to make money using cheap Chinese labor rather than use American labor and sell US product abroad currently have much more influence, not only at the WaPo but in Congress and with presidential administrations.
Forget the Factories?
written by anon, April 12, 2012 2:29

Have you seen this (Matt Yglesias on manufacturing)?:
http://www.slate.com/articles/...y/2012/04/ obama_s_manufacturing_plan_the_president_s_terrible_foc
written by Jane Flemming, April 12, 2012 2:50
In an opinion piece for the Globe and Mail the economist Stephen Gordon offers the following on currency depreciation

"The main obstacle to larger and potentially destabilizing inflows of foreign capital is the exchange rate; a high value of the Canadian dollar acts as a deterrent to foreign investors. A policy-engineered depreciation would accelerate capital inflows and could end up fuelling an asset price bubble." Is this true, and does it matter as far as achieving higher employment and wages? The full piece "Trade is not a zero sum game" is here.

Thank you.

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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.