Paul Lachine

No Time for a Trade War

The battle over China’s exchange rate is heating up again, with the US Treasury soon to assess whether China is a “currency manipulator.” But the concept itself is flawed – all governments take actions that directly or indirectly affect the exchange rate – and China's multilateral trade surplus is significantly smaller than that of Saudi Arabia or the combined total for Japan and Germany.

NEW YORK – The battle with the United States over China’s exchange rate continues. When the Great Recession began, many worried that protectionism would rear its ugly head. True, G-20 leaders promised that they had learned the lessons of the Great Depression. But 17 of the G-20’s members introduced protectionist measures just months after the first summit in November 2008. The “Buy American” provision in the United States’ stimulus bill got the most attention. Still, protectionism was contained, partly due to the World Trade Organization.

Continuing economic weakness in the advanced economies risks a new round of protectionism. In America, for example, more than one in six workers who would like a full-time job can’t find one.

These were among the risks associated with America’s insufficient stimulus, which was designed to placate members of Congress as much as it was to revive the economy. With soaring deficits, a second stimulus appears unlikely, and, with monetary policy at its limits and inflation hawks being barely kept at bay, there is little hope of help from that department, either. So protectionism is taking pride of place.

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