Recently team Trump has taken China to task at the W.T.O. for mercantile policies regarding theft of proprietary intellectual property; we’re also making headwinds in the reform of NAFTA with our counterparts in Mexico. As usual, the major media storyline regarding China remains limited to components of its current, capital account. Like every other positivist craft, the historicism dominating media tropes is used to obscure, not enlighten.
China’s capital account is closed. Even though the IMF continues to pursue Beijing’s movement toward a market based economy, the yuan isn’t convertible nor is it used widely. No amount of accounting acumen can change the nature of the regime in Beijing. In a word, political culture matters and without deep structural reforms in China’s managed economy, no one should think that the IMF or the west is winning in its engagement with China.
Every other nation that wishes to do business inside China remains constrained by tariff and non-tariff barriers. Beijing wants access to global markets but restrains all other competitors, both foreign and domestic. Why doesn’t China have domestic secondary bond markets? And who would trust them given the heavy hand of a Sinic Comintern in the management of China’s domestic economy. Can a regime that openly criminalizes political differences with work camps and public displays of intimidation be trusted? The IMF, WTO and bus loads of credentialed clowns never get around to discerning the moral status of China’s political order. The obsession over imports and trade deficits doesn’t threaten China, tax reform does!
The U.S. economy is grounded in global supply chains, so jeopardizing inputs to U.S. manufacturers isn’t a win. We compete globally, the others don’t. The U.S. domestic economy supports over eleven million households in export related industries. These are the families that are hurt when we pursue trade policies that don’t credibly threaten our economic adversaries.
And for those credentialed clowns that love to pontificate on our exchange rate, as if a weak dollar supports exports; kindly remember the primary challenge to our trade balance is the relative value of the U.S. dollar to the currencies of our competitors. A weak dollar can help exports, making our products cheaper for foreign buyers, but our focus isn’t on the myopia of exchange rates, but on increasing domestic demand for U.S. goods and services; something about monetary transmission mechanisms needs work here and inflation targets, money supply and hosts of other monetary platforms have failed. What’s needed is a policy mix that holds a favorable balance between fiscal and monetary trends, something the supply-siders deeply understood with Kemp, Volcker and Reagan.
The temptation to rely on the arcana of exchange rates or current account indices fosters obscurantism. Challenging the nature of the political regime of our adversaries matter.