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  • First Rain From Trade Storm

    Cargo-Shipping Cranes

    Yesterday’s Wall Street Journal had a front-page story on soaring unemployment among China’s rural migrants. While official Chinese employment statistics are spotty, the gigantic figures being thrown around are no surprise.

    The Journal and other outlets emphasize the Communist Party’s overwhelming fear of political instability caused by job loss. This fear will amplify calls for jobs to be created through more exports, either by devaluing the RMB directly or doing so indirectly via means such as still more tax breaks. Even more, it will reinforce Beijing’s unwillingness to make trade concessions desired by Washington on the RMB, in WTO disputes, or involving liberalization generally.

    In the U.S., the Obama administration set off a tempest when Secretary of the Treasury Geithner called China a currency manipulator during confirmation hearings. The Congress’ new Buy America legislation is broadly protectionist.

    The all-too-predictable result is two protectionist gales headed for collision over the Pacific. The PRC missed the opportunity for meaningful reform while its economy was humming 2003-2007. Now it may feel compelled to retaliate against the unfortunate but relatively mild barriers the Congress is likely to raise initially. This, in turn, could prompt further American action, breaking dangerous ground.

    Posted in International [slideshow_deploy]

    One Response to First Rain From Trade Storm

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