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Tuesday, March 21, 2006

China Says U.S. Should Blame Itself

China criticizes U.S. economic policy and says the U.S. should stop blaming China for the structural problems the policy has caused:

China warns US not to make it a scapegoat, by Richard McGregor and Geoff Dyer, Financial Times:  China will take measures to meet US complaints about their bilateral trade imbalance..., but has warned the US also to take responsibility for its economic problems. Wen Jiabao, China’s premier ... promised new initiatives on issues such as abuse of intellectual property rights,.... “But it is unfair for the US to scapegoat China for the US’s own structural economic problems,” Mr Wen added...

Brad Setser responds:

Brad Setser: If China doesn’t like US economic policies … Maybe it should stop financing them. ... At least in my view, Chinese premier Wen's criticism of US economic policy - and US economic scape-goating -- would have a lot more credibility if China wasn't spending around $250b a year (10% of its GDP) resisting market pressure for China's exchange rate to appreciate. Because of that policy, China ends up financing a rather significant fraction of the US fiscal deficit ... and the US current account deficit... In the process, it also masks the impact of bad US economic policies. ...

No doubt, there is plenty of blame to go around. The US isn't serious about doing anything to reduce its fiscal deficit. Just try to read the President's latest remarks. To the extent that they make any sense (see DeLong)... And President Bush has done absolutely nothing to try to assure that all parts of America benefit from globalization. Cutting taxes on dividends, estates and capital gains -- and proposing to dismantle ... social security ... is hardly a creative policy response to intensified competition from labor rich economies around the globe. Yet China's commitment to exchange rate flexibility seems every bit as thin as the Bush Administration's commitment to fiscal sanity and sharing the benefits of growth widely. ... I'll have much more on the fact that no one really wants to do anything other than talk about global imbalances later. ...

I agree with Brad, the administration should accept its share of the blame for the fiscal deficit and other misguided policies, but China's currency manipulation is part of the story too.

    Posted by on Tuesday, March 21, 2006 at 07:11 PM in Budget Deficit, China, Economics, International Finance, International Trade, Politics | Permalink  TrackBack (0)  Comments (22)

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