No Time for a Trade War - Joseph E. Stiglitz
Autor: Mauricio Rodrigues | Publicado: 2011-10-05T05:00:00-07:00

2010-04-06No Time for a Trade War
  
NEW YORK  – The battle with the United States over China’s exchange rate  continues. When the Great Recession began, many worried that  protectionism would rear its ugly head. True, G-20 leaders promised that  they had learned the lessons of the Great Depression. But 17 of the  G-20’s members introduced protectionist measures just months after the  first summit in November 2008. The “Buy American” provision in the  United States’ stimulus bill got the most attention. Still,  protectionism was contained, partly due to the World Trade Organization.
Continuing economic weakness in the advanced economies risks a  new round of protectionism. In America, for example, more than one in  six workers who would like a full-time job can’t find one. 
These were among the risks associated with America’s  insufficient stimulus, which was designed to placate members of Congress  as much as it was to revive the economy. With soaring deficits, a  second stimulus appears unlikely, and, with monetary policy at its  limits and inflation hawks being barely kept at bay, there is little  hope of help from that department, either. So protectionism is taking  pride of place.
The US Treasury has been charged by Congress to assess whether  China is a “currency manipulator.” Although President Obama has now  delayed for some months when Treasury Secretary Timothy Geithner must  issue his report, the very concept of “currency manipulation” itself is  flawed: all governments take actions that directly or indirectly affect  the exchange rate. Reckless budget deficits can lead to a weak currency;  so can low interest rates. Until the recent crisis in Greece, the US  benefited from a weak dollar/euro exchange rate. Should Europeans have  accused the US of “manipulating” the exchange rate to expand exports at  its expense?
Although US politicians focus on the bilateral trade deficit  with China – which is persistently large – what matters is the  multilateral balance. When demands for China to adjust its exchange rate  began during George W. Bush’s administration, its multilateral trade  surplus was small. More recently, however, China has been running a  large multilateral surplus as well.
Saudi Arabia also has a bilateral and multilateral  surplus: Americans want its oil, and Saudis want fewer US products.  Even in absolute value, Saudi Arabia’s multilateral merchandise surplus  of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a  percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of  GDP, is more than twice that of China. Saudi Arabia’s surplus would be  far higher were it not for US armaments exports.
In a global economy with deficient aggregate demand,  current-account surpluses are a problem. But China’s current-account  surplus is actually less than the combined figure for Japan and Germany;  as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.
Many factors other than exchange rates affect a country’s trade balance.&nbsp; A  key determinant is national savings. America’s multilateral trade  deficit will not be significantly narrowed until America saves  significantly more; while the Great Recession induced higher household  savings (which were near zero), this has been more than offset by the  increased government deficits.
Adjustment in the exchange rate is likely simply to shift to  where America buys its textiles and apparel – from Bangladesh or Sri  Lanka, rather than China. Meanwhile, an increase in the exchange rate is  likely to contribute to inequality in China, as its poor farmers face  increasing competition from America’s highly subsidized farms. This is  the real trade distortion in the global economy – one in which millions  of poor people in developing countries are hurt as America helps some of  the world’s richest farmers.
During the 1997-1998 Asian financial crisis, the renminbi’s  stability played an important role in stabilizing the region. So, too,  the renminbi’s stability has helped the region maintain strong growth,  from which the world as a whole benefits.
Some argue that China needs to adjust its exchange rate to  prevent inflation or bubbles. Inflation remains contained, but, more to  the point, China’s government has an arsenal of other weapons (from  taxes on capital inflows and capital-gains taxes to a variety of  monetary instruments) at its disposal.
But exchange rates do affect the pattern of growth, and it is  in China’s own interest to restructure and move away from high  dependence on export-led growth. China recognizes that its currency  needs to appreciate over the long run, and politicizing the speed at  which it does so has been counterproductive. (Since it began revaluing  its exchange rate in July 2005, the adjustment has been half or more of  what most experts think is required.) Moreover, starting a bilateral  confrontation is unwise.
Since China’s multilateral surplus is the economic issue and  many countries are concerned about it, the US should seek a  multilateral, rules-based solution. Imposing unilateral duties after  unilaterally labeling China a “currency manipulator” would undermine the  multilateral system, with little payoff. China might respond by  imposing duties on those American products effectively directly or  indirectly subsidized by America’s massive bailouts of its banks and car  companies.
No one wins from a trade war. So America should be wary of  igniting one in the midst of an uncertain global recovery – as popular  as it might be with politicians whose constituents are justly concerned  about high unemployment, and as easy as it is to look for blame  elsewhere. Unfortunately, this global crisis was made in America, and  America must look inward, not only to revive its economy, but also to  prevent a recurrence.Joseph E. Stiglitz is  a professor of economics at Columbia University and winner of the 2001  Nobel Memorial Prize in Economics. His most recent book, Freefall: Free Markets and the Sinking of the World Economy, is now available in French, German, and Japanese, and will be shortly available in Spanish, Italian, and Chinese.