Trade Arithmetic and China

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Tuesday, 18 September 2012 04:24

The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.

By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies.