Since the Washington Post decided to attack Mitt Romney for China bashing as part of his presidential race, it seems only appropriate to attack the Post's own China bashing in the same editorial. While the Post is almost certainly right about Romney's motives, it's wrong about the logic of the case.
The United States has a huge trade deficit. China has a huge trade surplus. This is 180 degrees at odds with the textbook story. A fast growing developing country like China is supposed to be borrowing capital from the rest of the world. The idea is that capital is in short supply and can get a high rate of return there. This means that it should have a trade deficit.
The opposite is true with a relatively slow growing wealthy country like the United States. We should be lending capital to developing countries where it will get a higher return. This means that we would have a trade surplus.
Since the story is 180 at odds with theory -- China having a large surplus and the U.S. having a large trade deficit -- the question is how we correct the imbalance. The textbook story, and also the only plausible story, is that we get the dollar down against the Chinese and other currencies, making U.S. exports cheaper to other countries and imports more expensive for people in the United States. (It is important to remember that we got into this hole primarily because of the strong dollar of the Clinton-Rubin years. Our trade deficit had been relatively modest in the mid-90s until the dollar soared in the wake of the East Asian financial crisis.)
This means that Governor Romney is absolutely right as a matter of policy to be hammering on the over-valued dollar as a major cause of our trade deficit, even if he may be insincere in a commitment to a lower valued dollar. (It is worth noting that the Post's claim that the real value of the Chinese currency has risen by 37.5 percent in the last two presidential terms is misleading. This is based in large part on differences in the inflation rates in the two countries. The inflation rate in China has been pushed up by higher housing costs and food prices. We actually want to know the change in the prices of traded goods. The gap in the rates of inflation between China and the United States in this area is almost certainly much smaller.)
The Post's own excursion in China bashing came at the end of the piece where it tells readers:
"China has given the United States many legitimate causes of complaint, from its human rights violations to its incessant intellectual-property theft..."
Actually, it is not clear how much of the transfer of intellectual products in China can be deemed "theft." Furthermore, those who support free trade should not be interested in pushing this incredibly costly form of protectionism on China. Insofar as the Chinese are forced to pay monopoly prices for items subject to patent and copyright protection it will slow growth and reduce the amount of money that the country has available to buy U.S. goods and services.
It is probably worth noting that many companies that advertise in the Post, most importantly drug companies, have much to gain from increased patent and copyright enforcement in China. Since the Post raises issues of motives in reference to others, it is only appropriate that the same standard be applied to it.
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