Thu, Feb 04, 2016 - Page 9 News List

Effect of rising Chinese trade on US workers

By Josh Barro  /  NY Times News Service

Trump says he will “beat China,” whatever that means. Last month, in a meeting with the New York Times editorial board, he floated the idea of a 45 percent tariff on Chinese imports and then denied he had ever suggested such a move.

Bernstein has advocated provisions in international agreements that punish countries for manipulating their currencies, as China did for years, depressing the value of its currency to help its manufacturers undercut other countries on price.

While such rules would help level the playing field in the future, they would not do much today because China’s currency is no longer overly weak, Bernstein said.

Dean Baker, an economist who often agrees with Bernstein on trade matters, said the opposite: He says that China’s currency is still too weak, held down by huge investments in US bonds held by the Chinese central bank.

If they sold those bonds, China’s currency would strengthen, US manufacturers would be in a better position to compete and the trade deficit would shrink, Baker said.

Bernanke said last year that trade imbalances are a problem that cannot be dealt with through formulaic rules and are instead a matter for international diplomacy. That is, we must urge countries that are running persistent and unjustified trade deficits to stop doing so.

Hanson expressed skepticism that any public policy tools would be effective in combating the imbalance of trade because the exact source of the imbalance is a “puzzle,” much of it far removed from what you would traditionally think of as trade policy. For example, he said that the one-child policy is perpetuating the trade imbalance by driving Chinese workers to save instead of consume, as they know they will enter old age without many children to support them.

“The problem is not trade liberalization,” he said. “Trade is going to lead to the reallocation of workers across sectors, generating income growth for the world as a whole, even if you have distributional effects along the way. The problem is that labor market adjustment is too slow.”

As such, Hanson calls for changes in the US economy: reforms to labor, housing and safety-net policy that would make it easier and less painful for workers to move to new regions and switch to new industries — whether such moves were necessitated by global trade or any other economic shifts.

However, Baker thinks there are more opportunities to use the diplomatic channels identified by Bernanke to make trade with China less harmful to US workers. He notes that currency manipulation and the trade deficit are existing items on the US diplomatic agenda with China; the question is how high they rank and what issues US officials really care about winning on.

“We have a list of things,” he said. “We want you to respect Bill Gates’ copyrights; we want you to respect patents; Goldman Sachs wants more access. There’s a list, and currency is on it.”

If the problem is the US has been botching negotiations with China by focusing on the wrong things, there is a candidate who has been saying something similar to that. Like the reform conservatives before them, trade-skeptical economists can be added to the list of policy thinkers who are hearing from the Trump campaign a policy message they have long promoted, coming from a messenger they do not like, expressed in terms they would rather not be associated with.

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