Anyone who still believes that the revaluation of the yuan is the magic bullet that is going to save US manufaturing needs to read this trade briefing paper from the Cato Institute, a libertarian thinktank in Washington, DC. In it, the case against Senator Chuck Schumer’s proposed punitive tariffs against China is laid out carefully and thoughtfully. Some highlights:
- Imports from China are not the primary cause of the decline in US manufacturing jobs since 2000. The real reasons for the loss of some 3 million such jobs during this time were the US recession of 2001, sluggish demand abroad for US exports, and especially increased productivity in US manufacturing.
- 60% of China’s exports are made in foreign-owned plants, and much of the increase in Chinese exports has come as a result of other Asian countries sending their products to China to be "finished" before being exported to America and Europe. As Chinese exports to the US have gone up, those from other East Asian countries have gone down as a percentage of all US imports.
- Tariffs on Chinese exports would do great harm to American consumers, whose access to low-cost Chinese-made textiles and shoes, home appliances and furniture, computers, electronics, toys, and other goods greatly increases their real wages by stretching the value of their paychecks.
- Since 2001, the euro has appreciated by one third against the dollar, yet the US trade deficit with the euro zone has increased by 69%, suggesting that RMB revaluation would do nothing to lower the US trade deficit with China.
Most importantly, the paper argues, "sanctions of the kind being contemplated in Congress would also violate the same set of international trade rules that members of Congress accuse China of violating", and furthermore, they would invite retaliatory measures from China. Do we really need a trade war between two of the biggest and most dynamic economies in the world?