What Obama Should Have Said in China

Martin Wolf offers this advice in the FT:

“I recognise that China has played an invaluable role by stimulating domestic demand and so facilitating needed global adjustments. The IMF apparently expects a huge decline in China’s current account surplus this year. Unfortunately, that may well prove temporary: first, your stimulus programme, with its reliance on massive credit expansion, may prove unsustainable; second, the decline in China’s trade surplus is largely the result of the crisis-induced collapse in world trade; and, third and most important, China has embarked on currency deprecation by locking the renminbi to the falling dollar.

“At a time of such weak global demand, yours is a ‘beggar thy neighbour’ policy. You complain about the protectionist actions I have implemented. But their impact will be trivial compared with China’s ‘exchange rate protectionism’. This policy will shift the costs of adjustment on to China’s trading partners. Yet, again in Mr Strauss-Kahn’s words, ‘a stronger currency is part of the package of necessary reforms. Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labour share of income, and provide the right incentives to reorient investment’.

Conservatives should beware letting the (understandable) partisan impulse to accept all criticisms of the Obama administration no matter the source – and also the (less understandable) ideological conviction that a high dollar is always good – to mislead them into ignoring how much of the world’s present economic danger is made in China.