Is China Cheating?

Foul play! How else, says the US, could China undercut American producers in so many areas?

For decades America seemed to dominate manufacturing, so US officials focused on liberalizing trade in manufactured goods. They put little effort into creating a level playing field for farmers, since they knew America couldn't compete in agriculture.

Now, China is out-competing everyone, racking up huge trade surpluses with the US. So America's Treasury Secretary accuses China of deliberately keepings its exchange rate low, and calls for China to let market forces determine the value of the reminbi. The IMF's departing Chief Economist, Ken Rogoff, warns that the surpluses put global stability at risk.

For those who recall East Asia's crisis of five years ago, much of this seems to run counter to what was said then. China was urged not to float its currency. Until Argentina's peso imploded, fixed exchange rates were fine. The US Treasury welcomed government intervention in exchange rate markets, and encouraged the IMF to support such interventions with mega-billion dollar loans to crisis countries. If China had let its currency float back then, it would have depreciated in value, deepening the crisis.