August 08, 2015
Catherine Rampell seems to want to turn trade issues between China and the United States into a he said/she said in a column citing complaints by Chinese businesses over U.S. practices. While there are undoubtedly many instances of U.S. practices that are protectionist, the overall picture is very clear.
China continues to run a large trade surplus. We usually expect fast growing developing countries to run trade deficits. The logic is that they offer a return on capital, leading to large inflows, which drive up the price of their currency. This makes their goods and services less competitive, causing them to run trade deficits.
China’s central bank has bought trillions of dollars of foreign exchange in order to keep its currency from rising. This is why the country continues to run trade surpluses in spite of having a growth that far exceeds that of almost all of its trading partners.
Holding $4 trillion in reserves is not a subtle point. It is not affected by the fact that the United States may have unfair protections in a small number of industries.
Comments