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  • How Congress Should Deal with China

    The House Ways and Means Committee will hold a hearing tomorrow on America’s economic relations with China. This is easier said than done—there’s a lot of ground to cover.

    One topic gets the most attention, of course: China’s currency policy. We should all hope that the committee can move beyond currency. More than enough time has been wasted on this. There is no real relationship between the exchange rate and our unemployment rate.

    And there are plenty of other things to talk about. On China’s side, there are a number of problems that dwarf currency. The most fundamental is Chinese subsidies to state-owned or state-controlled enterprises. These include statutory requirements that most major sectors of the PRC’s economy be dominated by the state, which blocks provision of goods and services by American companies—everything from autos to telecom.

    In addition, the subsidies are funded by indirect taxes on Chinese consumers and enable excessive investment by state firms. Too little consumption and too much investment is the PRC’s large contribution to imbalances that have threatened and continue to threaten the global economic system.

    The United States Trade Representative just alerted the World Trade Organization to almost 200 subsidies that China should have declared but hasn’t. This is a belated but welcome step forward, and the Ways and Means Committee should encourage more action along these lines.

    Another fundamental issue is intellectual property. The PRC understandably wants and expects the U.S. to act as the global trade leader, accepting China’s comparative advantage in assembly of many consumer goods. However, Beijing often shrugs off the American comparative advantage in intellectual property as something China can’t protect right now. It is harder to see the way forward in intellectual property than in subsidies, but the U.S. should continue to press.

    Another matter is increasing Chinese warping of global energy markets through its domestic policies. And there are more.

    Finally, the Ways and Means Committee is a good place to acknowledge the biggest American distortion of U.S.–China economics: our huge budget deficit. Among other things, the budget deficit draws Chinese money to U.S. government bonds that could be spent on American assets, goods, and services.

    The hearing can’t solve these problems, naturally. But it could be a step in the right direction. We’ve been obsessed with currency for years. The result: a 25 percent yuan appreciation—which is what we say we want—and much higher unemployment. Subsidies are a much more important issue, as is intellectual property. Ways and Means can help chart a way forward for more effective China policy.

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    4 Responses to How Congress Should Deal with China

    1. Mike says:

      Stop any and all consideration of China period. Focus on our nation and it's defense and economy. China wishes to build its nation with slave labor of a major portion of its own populus let them it will not last indifinatly. All govt managed nations fall internally, let it. Quit wasting our tax money on stupidity.

    2. MACForReal says:

      It seems to me China is a structural complex destined for implosion. If China wants to support an undervalued yuan (and that ain't free to China), good for us and the rest of the world. I like it when someone else subsidizes things I desire (if I am not doing the subsidization via US taxes (income, excise, etc.), tariffs, etc. Ditto for chinese subsidization of their domestic industries (e.g. solar panels of current media fame). I'll take their money any day. The Chinese government's policies have led to serious malinvestments throughout their economy and inevitably will bury them under their own weight. If only US policy would cease employing these same type of short-sighted approaches and stop our headlong plunge towards the same inevitable end.

    3. FmrUSMCRnTX says:

      One of the biggest foreign policy blunders in our lifetime was the incredibly STUPID move on the part of Nixon/Kissinger to "normalize relations" with Communist China after the Vietnam War was ended. Of course there was enormous pressure from American business to do so….although it wasn't new. Various countries, including the USA, Germany, France, England, Russia & others had been trying to "open up China" since the 18th century. But we here in the USA were stupid enough to do it! Now we find that not only have we created a monster (which would've remained a 3rd world country had we NOT done the Nixon/Kissinger deal) but we're borrowing trillions of dollars from China while GIVING them "foreign aid". This is INSANE! As the comic strip character once so famously said "We have met the enemy and he is us!". Somewhere in many "politically correct " minds (??) we FORGOT that we're dealing with Communists! And they do NOT like us! :(

    4. Aileen says:

      The only thing the republican Congress knows about China is the "China" cups from which they drink their coffee…cups and coffee paid for by the tax payers….I resent the fact that they can even walk in the peoples house.

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