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Sunday, December 17, 2006

The Other Side of the Export Coin

Nouriel Roubini dissects Ben Bernanke's recent comment that China's currency policy amounts to an "export subsidy" for Chinese firms and notes it could just as easily be termed an "import subsidy" for the U.S. He also talks about the wisdom of Bernanke raising the issue in the first place:

Is China Subsidizing its Exports or Subsidizing US Imports? By Nouriel Roubini: Is China subsidizing its exports or subsidizing US imports? In his written remarks - but not in his actual speech in Beijing - Bernanke urged China to stop subsidizing its exports via a weak RMB (see also Brad Setser's comments...). He could have as well said that China is subsidizing US imports of Chinese goods, thus keeping Wal-Mart prices and US inflation lower than otherwise. Of course, from an economic point of view subsidizing exports is equivalent to subsidizing imports. But - from a political economy of protectionism perspective - speaking of export subsidies is putting the blame on "unfair" Chinese policies rather than recognizing, as the term "import subsidy" would have conveyed, that this Chinese currency policy is highly beneficial to US consumers and that it is keeping US inflation lower than otherwise.

Also speaking of "export subsidies" in the context of currency policy is loaded and dangerous: export subsidies are illegal within the WTO rules. And arguing that a weak currency is effectively an export "subsidy" could even give legal cover to those in the US who may pursue protectionist legal action against China because of its alleged export "subsidies". This is not an idle threat: when I was at the White House's CEA in the late 1990s we had to fight non-stop bone-headed protectionist proposals by the Dept. of Commerce ... to change US "dumping" rules to include low import prices due to the weakening currency values of some of our trading partners (for example the Asian currencies in crisis). ...

    Posted by on Sunday, December 17, 2006 at 12:23 AM in China, Economics, International Trade, Politics | Permalink  TrackBack (0)  Comments (12)

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