Hidden Harmonies China Blog

Last week, the WTO handed China a setback in its ruling over its appeal over export controls  (herein the Ruling) covering “[c]rtain forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous, and zinc.”

The Global Times has a strong response:

Time to reassess unfair WTO entry terms

Global Times | February 01, 2012 00:48

A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China’s resource preservation and environmental protection efforts.

China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.

Admittedly, joining the WTO has boosted China’s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling. They may become a hidden problem for China’s economy. Read more…

Last week, the U.S. Congress passed a bill that authorized the Obama administration to raise tariffs against Chinese goods in response to China’s alleged manipulation of its currency, purportedly to gain an unfair trade advantage. According to this article , while the Obama administration “has not taken a position on the bill … [t]he vote ‘shows lawmakers have serious concerns about this issue…’.” Leaders of the European Union appear also to join the chorus in bashing the Yuan, claiming that the Yuan may hurt prospects of overall European economic recovery. Read more…

Recently, a rising chorus can be heard in the U.S. accusing China of “manipulating” the value of the RMB. In a recent op-ed, Krugman characterized Chinese policy as an “anti-stimulus” to the rest of the world. In an editorial op-ed, the NY Times staff accused China of playing a “beggar-thy-neighbor competitive devaluation” that is “threatening economies around the world … fueling huge trade deficits in the United States and Europe … [and] crowding out exports from other developing countries, threatening their hopes of recovery.” 130 Congressman sent letter to the Obama administration urging Obama to take action against the yuan.

In response, China has denied that its policy has caused harm to the world. In contrast, China has argued that a stable Yuan is a major factor that has kept the world from economic free fall today. The trade imbalance between the U.S. and China is caused more by stringent U.S. export restrictions than the value of the yuan.

I am not going to go over every economic theory there is about international trade (there are so many), but will make a few observations. Read more…