A Slow Boat From China

China said it will send an envoy to Washington to discuss the friction between the two countries over the value of the yuan. It will not matter. Too many members of Congress, CEOs of major exporters, and union presidents who use China’s trade practices as a target for their plans to save millions of jobs need to get the yuan’s value to “float” in the free market. That should, they reason, give America the chance to compete with China’s exports based on price.

America can increase exports by two times what they are now, as the President says will happen. China’s economy will be damaged because the cost of its manufactured goods will rise. The day when China’s GDP catches America’s will be pushed well beyond the horizon.

China’s leaders are clearly in the midst of trying to fashion some compromise. The Emperor has had no clothes for too long. China has protected its currency in an unseemly way, at least economically. The world’s most populous nation can act on its own, or have the other major world powers label it a currency manipulator. That will probably lead to a series of large tariffs against Chinese goods which could knock down its export traffic enough to put its economy into a funk.

China still has more leverage than the developed nations. They cannot run their economies without cheap Chinese goods. It would hurt consumer spending and damage the already hobbled retail industry. China cannot be replaced as the “low-cost” provider of imports. It does not need to mention that fact. It is easier for China to say it cannot re-value the yuan because the action would ruin China’s cost advantage and push Chinese workers out of jobs.

China’s envoy may seem to come to Washington hat in hand. He may suggest some modest compromises on the yuan’s value. He will, however, say in private and not in public, that the US would not want to see Walmart go out of business because it cannot make a profit on goods made in America.

Douglas A. McIntyre