In today’s news from the Financial Times, and I’ll paraphrase: “blah blah blah. China bad. blah blah blah. Trade deficit. blah blah blah. Blame the yellow people. blah blah blah.”
Clinton, Obama, and bunch of Republicans want to pressure China into ending their “freebies for the world program” (my title) method of currency valuation.
The bipartisan legislation has been spurred by claims that China’s cheap currency makes its exports more attractive and is contributing to the record annual $232.6bn (£115.6bn) US trade deficit with the country.
In other words, the economists are right.
Speaking of economists, here’s one who posted just yesterday about the “irrelevance of bilateral trade balances.”
Additionally, while China may be artificially lowering the price of its exports, the US is equally, if not more, guilty of artificially increasing the price of domestic goods through taxation.
Really the good news here is that our popularly elected political followers (if they do as they polls say, they are followers) really do understand supply and demand. So whenever they wish to argue that raising prices won’t lead to a reduction of quantity demanded, we can kindly remind them of what they know to be true.
