In currency struggle, China is victim, not offender
- Source: Global Times
- [22:34 January 06 2010]
- Comments
By Henry C.K. Liu
A piece by New York Times Op- Ed columnist Paul Krugman, "Chinese New Year," published on December 31, contains both errors of fact and fl aws of logic. But the most egregious fault of the piece is Krugman's approach of blaming the victim for the crime.
Krugman wrote in his article that "China has become a major financial and trade power. But it doesn't act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artifi cially high. And in today's depressed world, that policy is, to put it bluntly, predatory."
Krugman should know that demonizing China for its monetary policy, which is fundamentally a response to US policy, serves no useful purpose.
Instead of pushing China to revalue the exchange value of its currency upward, he should be pushing both China and the US to raise domestic wages aggressively.
Until US workers doing the same work are not paid more than their Chinese counterparts, US-China trade cannot be balanced. The preferred solution is for Chinese wages to increase at a faster rate than US wages, and not for US wages to decrease. Cooperation on this front is urgently needed in USChina bilateral trade talks.
The global dollar economy is now treating the US economy as a colony. But the global dollar economy is not controlled by China, but by the US financial elite.
China needs to understand that there is no future in participating in a global trade regime with the dollar as the reserve currency.
China should resist the US call for it to be a "stakeholder" in the global dollar economy if China does not wish to fall victim to a new form of neoimperialism.
Krugman inaccurately described China's currency today as "pegged by official policy at about 6.8 yuan to the dollar." To appease US demand, China abandoned a fi xed yuan-dollar peg in 2005 for a managed fl oat against a basket of currencies within a band and at a crawl rate. Since then, the yuan has appreciated by about 20 percent against the dollar.
When the yuan was pegged exclusively to the dollar, it lost value relative to other currencies when the dollar fell, as it did between February 2002 and 2005.
Although the US accused China of currency manipulation, the US was in reality the main manipulator of its own currency and indirectly of the Chinese currency as well through the Chinese currency's position as a derivative of the manipulated dollar.
Krugman concludes that the US needs not be afraid to confront China on trade issues. He argues that since "short-term interest rates are close to zero; long-term interest rates are higher, but only because investors expect the zero-rate policy to end some day, China's bond purchases make little or no difference."
