Tuesday, October 23, 2012

The Chinese Currency Boogeyman


A quick few comments on last night's debate, mostly about Obama and Romney's mutual obsession over China's currency manipulation:

  • Tariffs are a bad way to "get tough on China." Obama and Romney have both supported this policy. The President has bragged in an ad about how he slapped a tariff on cheap Chinese tires to save American jobs. Here's the problem: that's an awfully expensive way to save a handful of American jobs. According to one study, the cost to consumers of that tariff was $1.1 billion--that is, about $900,000 per job that was saved. And Romney, instead of offering a critique of this policy based on the benefits of free trade, has attacked Obama for not making the tariffs big enough
  • This issue has largely stopped being relevant over the past several years. China's real exchange rate has risen dramatically because of domestic inflation and their trade surplus has gotten much, much smaller:

Frankly this was, if anything, an issue for 2008, not 2012.

The problem here is that neither of the candidates are offering a policy that would really help America's economy. If anything, as I pointed out above, their proposed policies would likely hurt the economy, because tariffs are effectively just a tax on our collective purchasing power. If the candidates really want to help Americans, they should probably talk a little more about their respective jobs programsOh, wait.