Category Archives: International Capital

Escalating the US-China currency dispute without tariffs

Daniel Gros and Fred Bergsten are proposing that the US use policy instruments other than tariffs to pressure China to appreciate the renminbi.


But there is another way. The US (and Japan) could easily prevent the Chinese Central Bank from continuing its intervention policy without breaking any international commitment. The US and Japan only need to invoke the principle of reciprocity and declare that they will limit sales of their public debt henceforth to only include official institutions from countries in which they themselves are allowed to buy and hold public debt. Instead of the “moral suasion”, tried in vain by the Japanese, the Chinese authorities would just be told that they can buy more US T-bills and Japanese bonds only if they allow foreigners to buy domestic Chinese debt.

Imposing such a “reciprocity” requirement on capital flows would be perfectly legal – although the US (and Japan and all EU member countries) have notified the IMF that they have liberalised capital movements under Article VIII of the IMF. Yet, in contrast to the area of trade, there are no legal constraints on the impositions of capital controls.


This gap can be filled, however, by the introduction of a new policy instrument: countervailing currency intervention. When China or Japan buy dollars to keep their currency substantially undervalued, the US should sell an equivalent amount of dollars to push back. The IMF should authorise such intervention when necessary, to discipline countries that are violating their obligations by engaging in deliberate undervaluation.

Setting aside the desirability of the move, there would seem to be a number of practical challenges in implementation.

House votes 348-79 to authorize punishing renminbi undervaluation


The measure would allow, but not require, the U.S. to levy tariffs on countries that undervalue their currencies. The bipartisan support highlights lawmakers’ long-simmering frustration with Chinese trade practices as well as their sensitivity to the faltering economic recovery with elections looming. It’s the strongest trade measure aimed at China to make it through a body of Congress after more than a decade of legislative threats by U.S. lawmakers…

Under the measure, the U.S. Department of Commerce would be directed to consider whether Chinese currency practices amount to an unfair subsidy in cases brought by industries competing with Beijing. If Commerce made such a determination, it could assess levies on goods imported from China or other countries with undervalued currencies.

But the measure, which was revised in a Ways and Means committee vote earlier this month, doesn’t require Commerce to make such a determination. The change in language, said Scott Lincicome, a trade lawyer at White & Case, gives the administration “a way to say no” to U.S. industries and could signal to China that the U.S. isn’t looking to declare a trade war over currency practices…

Despite the wide support the currency bill received in the House, it will be difficult for the measure to become law this year. China critics in the Senate plan to press for legislation when lawmakers return to Washington after the elections, but that would involve a separate proposal and the window for legislation to move before year-end is expected to be narrow.

Business Insider profiles the 10 states that export the most to China (“The 10 States About To Get Crushed In A US-China Trade War”), but because they use exports rather than exports per worker, California is #1, unsurprisingly.

Do IPAs improve export sophistication?

Torfinn Harding and Beata Javorcik on FDI and export unit values:

This study presents evidence suggesting that attracting inflows of FDI offers potential for upgrading a country’s export basket. The empirical analysis relates unit values of exports measured at the 4-digit SITC level to data on sectors treated by investment promotion agencies as priority in their efforts to attract FDI. The sample covers 116 countries over the period 1984-2000. The findings are consistent with a positive effect of FDI on unit values of exports in developing countries. However, such a relationship is less evident in developed countries. These results suggest that FDI can help bridge gaps in production and marketing techniques between developing and high income economies.

The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law

The US Treasury didn’t issue its currency manipulator report today, but there’s still plenty of reading material on the renminbi being published. The CEPR eBook The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law, edited by Simon J. Evenett, is available online at

US Treasury delays April 15 currency manipulation report


I have decided to delay publication of the report to Congress on the international economic and exchange rate policies of our major trading partners due on April 15.  There are a series of very important high-level meetings over the next three months that will be critical to bringing about policies that will help create a stronger, more sustainable, and more balanced global economy.  Those meetings include a G-20 Finance Ministers and Central Bank Governors meeting in Washington later this month, the Strategic and Economic Dialogue (S&ED) with China in May, and the G-20 Finance Ministers and Leaders meetings in June. I believe these meetings are the best avenue for advancing U.S. interests at this time.

Via Emmanuel.

Today at Vox

There are two columns on important, big-picture topics at VoxEU today.

Martin Ravallion: The World Bank’s estimate of China’s real GDP per capita was revised down by 40% in 2005. This column explains how price surveys led to dramatically different estimates once they considered the effect of economic growth. It argues that while large revisions were needed, they could have been avoided with better economic models to measure PPPs.

Yiping Huang: Should the US follow Paul Krugman’s advice and use protectionist policies against China’s exports to encourage a revaluation of its currency? This column argues against this idea. Far from saving jobs, a revaluation of the Chinese currency might even cut global economic growth by 1.5%.

Bergsten: The Dollar and the Deficits

Fred Bergsten has a lengthy piece titled “The Dollar and the Deficits” in Foreign Affairs.

In brief: “The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar.”

He says that global imbalances facilitated the crisis: “These huge inflows of foreign capital, however, turned out to be an important cause of the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies that — in combination with lax financial supervision — brought on the overleveraging and underpricing of risk that produced the meltdown.”

He advocates reserve currency diversification: “For the United States to avoid the resulting trade imbalances and debt buildup, some of this incremental demand should be channeled into euros, renminbi, and SDRs. Both international monetary reform and a lesser role for the dollar are very much in the interest of the United States.”

Read the full article for much more.