Thursday, July 12, 2007

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A whole-assed effort on a half-assed policy measure

In response to this post blasting the Baucus-Grassley-Schumer-Graham China bill -- and the presidential candidates who endorse it -- I received the following e-mail from a Hill staffer who shall remain very, very anonymous:

Over the next few months, our committee is going to be considering trade legislation on China, including the currency issue. I've read with interest your recent blog about your concerns with the Baucus-Grassley-Schumer-Graham bill. If we accept that something needs to happen legislatively (for political, if not substantive reasons) on currency, do you have any thoughts on what a sensible piece of legislation would look like?
So, the problem is that a political imperative exists to do something, but even the staffers know that the something proposed is bad, bad, bad.

The task, therefore, is to devise a bill that is perceived as doing something about China but in point of fact does not seriously rupture either the bilateral economic relationship or the U.S. economy. A bonus if the policy were to actually achieve the desired end -- a slow appreciation of the yuan.

Faced with this assignment, and after pleading numerous times to just do nothing, I'd offer four recommendations that might make this kind of thing look sensible:

1) Give China 18 to 24 months to achieve a quantifiable degree of appreciation (no, I'm not going to provide a number) before any measures are enacted. This kicks the can down the road for a while, and with some luck Beijing will head in that direction anyway.

2) Since a tariff will result in a) higher consumer prices and b) higher interest rates if China retaliates or acquiesces, have the bill suspend any punitive action unless the inflation rate is below 4.5% and/or the Federal funds rate is below 5.5%.

3) Demand that the Treasury Department investigate sovereign wealth funds, akin to their investigations of currency manipulation.

4) Screw trying to punish China for currency manipulation and focus on consumer health and safety instead. This gets at the issue sideways, but Beijing is clearly vulnerable on this point, no matter how many ex-regulators they execute. This is also an an issue where, for reasons I've elaborated at length elsewhere, Beijing is more vulnerable.

Please excuse me so I can wash my hands until they're clean.

posted by Dan on 07.12.07 at 05:04 PM



From your tenured chair on the east coast sneering is easy.

Over the next 3 - 4 years we are likely to offshore another 1/2 million or so manufacturing jobs, give or take.

Can those workers move in with you? Do you have any extra rooms?

Free trade will continue to grow, as it should. Ignoring the damages is not very smart politically. Allowing one side to ignore the rules is just plain dumb.

posted by: save_the_rustbelt on 07.12.07 at 05:04 PM [permalink]

Yes, protectionism will save America. I'm sure glad we solved that problem.

posted by: Robert S. Porter on 07.12.07 at 05:04 PM [permalink]

I have extra rooms, and I'm happy and damn proud to offer sanctuary to hard-working immigrants, whether they are officially-approved or not. IMO I'm "paying forward" since, like everyone else except the First Peoples, my ancestors were immigrants.

Now that we've cleared that up...Dr. Drezner, I understand why you feel dirty, and I respectfully submit that you should feel proud of yourself. It is the system which is dirty, and the politicians you mention who are dirty; your are not.

If Oskar Schindler dealt with the Nazis in order to rescue Jews, you should be able to deal with Democrats in order to rescue economic policy. (Hmm, a reverse example of Godwin's Law?)

posted by: John Fast on 07.12.07 at 05:04 PM [permalink]

Uh, oh. More job outsourcing

posted by: bluhawkk on 07.12.07 at 05:04 PM [permalink]

"If Oskar Schindler dealt with the Nazis in order to rescue Jews, you should be able to deal with Democrats in order to rescue economic policy. (Hmm, a reverse example of Godwin's Law?)..."

That has to be the most ridiculous comment on the blogosphere this week.

Will all due respect to the professor (and he is one of the young stars in his field) he is not in quite the same situation as Oskar.

This is not about protectionism, this is about transitions, and our whores-for-the-rich federal government.

posted by: save_the_rustbelt on 07.12.07 at 05:04 PM [permalink]

Best solution is actually to change our policy vis-a-vis Taiwan, call it, One China, One Taiwan. China ties trade deals to agreeing with their foreign policy. It's a great strategy because:
a) Bush cannot oppose Taiwan democracy while building one in Iraq
b) Conservative Republicans will agree with this strategy
c) If China blocks trade, Democrats get what they want
d) If China does nothing, America wins a giant victory for freedom

The question is, do Democrats have the brains or the balls to do it?

posted by: 8 on 07.12.07 at 05:04 PM [permalink]


posted by: revitol on 07.12.07 at 05:04 PM [permalink]

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