Placeholder on RMB Legislation (Short Version: It's No Smoot-Hawley)

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The House's vote on Wednesday to impose sanctions on China unless it let the value of its currency rise is important, but I don't have time to get into it at the moment.

Placeholders for now: I do not agree with the reflexive "Oh no, trade war ahead!" lamentation. That is partly for the reasons laid out on our site by Damien Ma (the legislation is not going to take effect; both sides are becoming more and more accustomed to managing these disputes).

Beyond that is the point I laid out early last year in the magazine, and for which Michael Pettis of Beijing is the most careful and consistent exponent. Short version: when the world's economies are highly-connected and when a global shortage of demand is causing employment problems anywhere, the country with the biggest chronic surplus [China] cannot continue to keep its currency artificially low. Or, it "can," but if it does then other countries can with good reason consider that a predatory, destructive act.

The House legislation, in my view, won't accomplish very much -- and, as I've written here many times, even a significant change in the RMB's value is not going to move factories from Guangdong to Ohio. But that is a different criticism from worrying that the House is taking us into "Smoot-Hawley" territory. Michael Pettis has carefully demonstrated why the national policy with the greatest Smoot-Hawley potential is China's, if it insists on defending its surplus at a time when global economies are supposed to "rebalance." (The Smoot-Hawley tariff was America's attempt to defend its surplus, when demand was collapsing around the world in the 1930s.)

More later. Turn to Pettis for guidance -- or for a different version, less tied to the internal Chinese dynamics, Paul Krugman today.

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James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

Fallows welcomes and frequently quotes from reader mail sent via the "Email" button below. Unless you specify otherwise, we consider any incoming mail available for possible quotation -- but not with the sender's real name unless you explicitly state that it may be used. If you are wondering why Fallows does not use a "Comments" field below his posts, please see previous explanations here and here.
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