Re: China Uses Rules on Global Trade to Its Advantage, by Keith Bradsher--March 15, 2010
Mr. Bradsher gets the consequences of state currency manipulation exactly backwards. No country can inflict damage upon another by manipulating its own currency; all harm accrues to the citizens of that country alone. By holding its currency weak, China subsidizes exports at the expense of its own citizens. The citizens of China's trading partners enjoy cheaper and/or better quality goods, while the Chinese experience higher prices due to trading more renmindi for foreign currencies than the unhampered market would allow. In economic terms this is called "importing inflation". Mr. Bradsher makes another crucial error when he makes the claim that "unlike extra government spending in the United States and other countries, currency intervention does not expand global demand, but shifts it from other countries to China." No, the process is the same, whether within one country or among several countries; that is, that governments cannot increase total demand. Mr. Bradsher describes perfectly the "fallacy of composition", whereby it is assumed that, since a government can shower benefits on one economic entity, it can shower benefits on all economic entities. On the contrary, government spending rewards some at the expense of others. Neither currency manipulation nor government spending will increase resources, but, instead, will transfer them--at a cost, of course--from some segments of the economy to others. The so-called stimulus spending in the United States does not increase total demand within our country any more than China's currency manipulation increases worldwide total demand.
Adjunct Instructor in Austrian Economics
University of Iowa
Iowa City, Iowa