U.S.-Sino Trade Relations; Congress Should Capitalize on China's Market Economy
Byline: James A. Dorn, SPECIAL TO THE WASHINGTON TIMES
China's record trade surpluses with the United States are not pleasing to the Congress or to the many China hawks on Capitol Hill. With little movement in the yuan/dollar exchange rate since it was revalued by 2.1 percent in July 2005, pressure is mounting to bring the Schumer-Graham bill to the floor for a vote in the fall. But placing prohibitive tariffs on Chinese imports will not correct the trade imbalance.
Rather than going down the path of destructive protectionism, the United States should get its own house in order by reducing the size and scope of government and by reaffirming its commitment to economic liberalism. Indeed, if the People's Republic of China is not to become the inevitable enemy that some on Capitol Hill envision, the United States must continue its policy of engagement.
Financial liberalization will take time, and China will move at its own pace. The United States should be patient and realistic. Most of the costs of China's undervalued currency are borne by the Chinese people. Placing prohibitively high tariffs on Chinese goods until the yuan/dollar rate is allowed to appreciate substantially is not a realistic option.It would unjustly tax American consumers, and would not correct the overall U.S. current account deficit (or even our bilateral trade deficit with China). It would also slow liberalization.
Adjustment requires that China not only allow greater flexibility in the exchange rate but also allow the Chinese people to freely convert the yuan into whatever currencies or assets they choose. Capital freedom is an important human right and would help undermine the Chinese Communist Party's monopoly on power by strengthening private property rights.
A more liberal international economic order is a more flexible one based on market-determined prices, sound money and the rule of law. We should help China move in that direction not by threats but by example. The U.S. government should begin by reducing its excessive spending and removing onerous taxes on saving and investment.
An orderly adjustment based on market-liberal principles would help ease the costs to the global economy and to the United States in particular. Keeping our markets open sends an important signal to the rest of the world, and getting our fiscal house in order by trimming the size of government and by real tax reform would show that we mean business. …