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This is a very good piece by @PaulBlustein, but it gets parts of the trade dynamics wrong. China’s “unfair” domestic requirements were no different than those imposed in the US and many other countries during their stages of rapid development. These requirements may have hurt...
@PaulBlustein ...individual companies – if Spain’s Gamesa was willing to give away its future for a short-term gain in market share, for example, that’s just a bad business decision – but they don’t hurt foreign economies overall. Chinese import substitution policies would not be a problem...
@PaulBlustein ...for the world as long as China replaced those imports with other imports.
But because of increasingly unbalanced income distribution, China couldn't keep imports growing fast enough even as its exports surged. As it forced households to subsidize manufacturing, Chinese...
But because of increasingly unbalanced income distribution, China couldn't keep imports growing fast enough even as its exports surged. As it forced households to subsidize manufacturing, Chinese...
@PaulBlustein ...households were less and less able to convert national income into consumption, and thus into imports. Even if China hadn't forced technology transfers, the result would have been the same: Chinese growth would come at the expense of global demand.
An undervalued currency...
An undervalued currency...
@PaulBlustein ...was part of the problem, but not because it made Chinese manufacturing more competitive. Currency undervaluation transfers income from households to manufacturers and forces up the savings rate. It is China’s artificially high savings rate that is the problem, not the...
@PaulBlustein ...artificial competitiveness of its manufacturers. Excessively high savings means that the income China derives from exports to the US, for example, are returned not in the form of imports from the US but in the form of purchase of US assets. Once you understand, you see that...
@PaulBlustein ...an undervalued currency was not the only problem, not even the main problem, Many policies artificially forced up Chinese savings, by far the most important of which was repressed interest rates.
Blustein adds: “For its part, the United States, with its low savings rate,...
Blustein adds: “For its part, the United States, with its low savings rate,...
@PaulBlustein ...relied on that inflow of Chinese capital—and capital from other nations—to help keep interest rates down.” I don't agree. The US doesn’t import foreign capital to boost its low domestic savings; it has low domestic savings because 40-50% of foreign excess savings flow to...
@PaulBlustein ...the US. The point is that as long as the US remains the economy into which countries like Germany, Japan, China and others can dump their excess savings, then it doesn’t matter whether or not China ends its “unfair” trade practices. The US cannot help but continue to run...
@PaulBlustein ...deficits and suffer from weak demand.
Blustein is absolutely right to suggest things started to go bad once Treasury was put in charge of trade. Bankers will never recognize that free capital flows can be good in certain circumstances but bad in others, and so will never...
Blustein is absolutely right to suggest things started to go bad once Treasury was put in charge of trade. Bankers will never recognize that free capital flows can be good in certain circumstances but bad in others, and so will never...
@PaulBlustein ...resolve the problem: by preventing foreigners from using easy access to US financial markets to absorb bad income distribution polices at home that force up unwanted savings and so force the US to import their excess production. The US must be prepared to tax foreign...
@PaulBlustein ...capital inflows rather than imports of foreign goods. Sorry for the very long tweet, but this was a typically smart Blustein piece and, I think, quite important.
