Congress and Wall Street and Main Street are for once in agreement: enough of this market manipulation, China needs to let its currency appreciate and balance its trade; US manufacturing is bleeding on the operating table and China is hoarding the blood supply.
In an AEA talk today, Dani Rodrik tells us to give China a break. His argument: the ‘Depreciate Now!’ view downplays the extent to which China’s currency and trade policy has driven its astonishing growth and social stability.
It also downplays the fact that China’s imbalance is also quite a recent phenomenon – since just 2001—the year that China joined the WTO. (WTO membership meant abandoning many of its traditional tools of industrial policy. So the currency strategy is, at minimum, a means of managing the transition.)
Even if currency manipulation is no temporary move, maybe we should simply let China be. For a bit. China has more poor people than any country but India, and Chinese trade and industrialization has done more to reduce world poverty than any action in the history of humankind. Letting that machine run for a few more years may be the greatest kindness of strangers in human history as well.
I could also see a fairness argument to be made. The West (if I remember my economic history) enjoyed a long period of trade surpluses that helped speed its own growth. Is it time to give other nations a chance?
Dani makes a slightly different point, however: if we take the long view, a growing China with a labor surplus employed is a safer China (and, by extension, a better safer world). Our short run pain is everyone’s long term gain.
I tend to agree, but with one reservation. Dani’s idea seems founded on another conventional wisdom: the idea that the risk of social unrest rises with the number poor and unemployed young men. Is that true?
It’s surprising how entrenched is this view, in spite of an absence of good evidence, especially at the micro level. The little evidence in political science and some economics suggests the instigators, terrorists and guerillas of the world seem to be drawn from elites, students, and middle classes at least as often as they come from the poorest and unemployed.
Apologies to Dani if I misrepresent his view–I blogged after hearing the 10-minute talk rather than reading the full paper. When I’m mistaken, though, my readers are very good at pointing it out. Fire away…