The Post-American World - Fareed Zakaria [121]
I love the idea of bipartisanship. Just the image of Democrats and Republicans coming together makes me smile. “Finally,” I say to myself, “American government is working.” But then I look at what they actually agree on, and I begin to pine for paralysis.
In September 2010, the House of Representatives passed a bill with overwhelming support from both Democrats and Republicans. It would punish China for keeping its currency undervalued by slapping tariffs on Chinese goods. Everyone seems to agree that it’s about time. But it isn’t. The bill is at best pointless posturing and at worst dangerous demagoguery. It won’t solve the problem it seeks to fix. More worrying, it is part of growing anti-Chinese sentiment in the United States that misses the real challenge of China’s next phase of development.
There’s no doubt that China keeps the renminbi, its currency, undervalued so it can help its manufacturers sell their toys, sweaters, and electronics cheaply in foreign markets, especially the United States and Europe. But this is only one of a series of factors that have made China the key manufacturing base of the world. (The others include low wages, superb infrastructure, hospitality to business, compliant unions, and a hardworking labor force.) A simple appreciation of the renminbi will not magically change all this.
Chinese companies make many goods for less than 25 percent of what they would cost to manufacture in the United States. Making those goods 20 percent more expensive (because it’s reasonable to suppose that without government intervention, China’s currency would increase in value against the dollar by about 20 percent) won’t make American factories competitive. The most likely outcome is that it would help other low-wage economies like Vietnam, India, and Bangladesh, which make many of the same goods as China. So Walmart would still stock goods at the lowest possible price, only more of them would come from Vietnam and Bangladesh. Moreover, these other countries, and many more in Asia, keep their currencies undervalued as well. As Helmut Reisen, head of research for the Development Center at the Organisation for Economic Co-operation and Development, wrote recently in an essay, “There are more than two currencies in the world.”
We’ve seen this movie before. From July 2005 to July 2008, under pressure from the U.S. government, Beijing allowed its currency to rise against the dollar by 21 percent. Despite that hefty increase, China’s exports to the United States continued to grow mightily. Of course, once the recession hit, China’s exports slowed, but not as much as those of countries that had not let their currencies rise. So even with relatively pricier goods, China did better than other exporting nations.
Look elsewhere in the past, and you come to the same conclusion. In 1985 the United States browbeat Japan at the Plaza Accord meetings into letting the yen rise. But the subsequent 50 percent increase did little to make American goods more competitive. Yale University’s Stephen Roach points out that since 2002 the U.S. dollar has fallen in value by 23 percent against all our trading partners, and yet American exports are not booming. The United States imports more than it exports from ninety countries around the world. Is this because of currency manipulation by those countries, or is it more likely a result of fundamental choices we have made as a country to favor consumption over investment and manufacturing?
Our fears extend well beyond terrorism and economics. Lou Dobbs, the former CNN commentator, became the spokesman of a paranoid and angry segment of the country, railing against the sinister forces that are overwhelming us. For many on the right, illegal