In recent years, we have seen our trade deficit with China balloon, and many are increasingly concerned about the effect this manipulation is having on the American economy. If there was a direct subsidy by the Chinese, we would have some recourse under international trade law, but the current practice falls in an area that is more than a little murky at this point. It is unclear whether this constitutes an “unfair trade practice” as defined by the World Trade Organization.
It is true that the current situation does present some benefits to the American people. The Chinese accumulation of U.S. debt helps to keep our interest rates low and finance our government’s deficits. Furthermore, less expensive Chinese goods-both finished products and supplies for American manufacturers-increase the purchasing power for the average consumer. China should continue, and indeed speed up, its moves toward a free-floating currency.