Speaking of true conservatives, from today's Post:
Tougher on China
Thursday, May 19, 2005; Page A26
LAST WEEK the Bush administration announced plans to impose quotas on Chinese clothing exports. On Tuesday it warned China that it may brand it a currency manipulator. In the first case, the administration is bowing to congressional pressure to get tough. In the second, it is trying to resist such misguided pressure, even while signaling that it will cave in to the hard-liners soon if China fails to change its policy.
China's clothing exports have surged this year, and the administration is threatening quotas on the theory that jobs in the United States are in peril. But the surge reflects the expiration of the global quota system that had been on the calendar for years; U.S. producers can hardly claim that they weren't given time to prepare. Moreover, U.S. producers have not been greatly affected: China's exports have surged mainly at the expense of other poor countries. That is an argument for boosting development aid to the nations that have lost out, not for protecting domestic lobbies.
Moreover, quotas could have perverse consequences. By artificially restricting the supply of Chinese clothing in the United States, the administration will drive the price of Chinese products up and boost profit margins -- an odd sort of punishment. Meanwhile, quotas will create an incentive to move into fancier, higher-profit clothing -- precisely the market niche that the remaining U.S. apparel industry occupies. This is what happened when the United States imposed quotas on Japanese cars: Toyota created the high-end Lexus, Nissan created the luxury Infiniti and the pressure on Detroit redoubled.
China's currency poses a harder set of questions. It's true that Beijing's policy of pegging the yuan to the dollar has dragged the currency too low, boosting exports to the point that China has a large and growing trade surplus. This creates a challenge for Chinese policymakers: Dollars flood into China as Chinese goods flood out, and the central bank has to buy up loose greenbacks to prevent the dollar from falling against the yuan. The more the central bank buys, the more its growing pile of dollars makes its policy look unsustainable. Speculators have started to move more dollars into yuan in the expectation that revaluation is coming. Like many speculative attacks, this one could be self-fulfilling.
For its own good and also for the good of global trade balance, China needs to find a way of switching policy -- either by moving the yuan to a new, higher value or by unpegging its exchange rate. This will be a risky process, with unpredictable results: Some economists worry that the drying up of central bank purchases of dollar-denominated bonds will drive up U.S. interest rates, perhaps bursting the real estate bubble. Given the scary delicacy of this issue, the United States has an interest in nudging the Chinese toward a sounder currency policy but not in complicating the dialogue with fraught accusations of "manipulation." Since when is a currency peg manipulative, anyway? Should the euro-zone economies be subjected to sanctions for pegging their currencies to each other? Should penalties have been imposed on Argentina when it maintained a peg? Nobody in Congress dreamed of that.
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