3 Comments
  1. StephenM says

    Pardon for mixing methapors, but I’ve always wondered whether or not the effective fixing of the Chinese currency was the proverbial elephant in the china shop.

    Is not currency manipulation a “pre-emptive” strike in some sense and any presumed retaliatory response/s more a defensive move on the part of the US?

    I’m a believer in free trade, but when currencies move by 30%-50% (AUD/USD) in a short period of time, or alternatively, don’t or slowly move for an extended period (USD/Yuan), there can be economic structural dmamage. In the case of Australia, whole industries may be lost on an expensive currency, and never regained if the currency falls. While in the US, employment displacement and the costs thereof over the long term may discount much of the shorter term benefits of free trade. It may sound anathema to a free market believer, but I am starting to incline towards managed protectionism.

    I’m not sure if I saw this paper on this website, but I think that

    “The China Syndrome: Local Labor Market Effects of Import
    Competition in the United States by Autor, Dorn and Hanson (http://econ-www.mit.edu/files/6613)” is partially relevant.

    Regards

    Stephen

    1. Edward Harrison says

      As I said in the post on 1930, the trade conflict is just part of a larger economic battle that includes competitive currency devaluation, quantitative easing, and zero interest rates. The question is how to keep the pie from shrinking by engaging in tit for tat zero-sum actions instead of trying policies that bolster demand. The key is that this economic battle in the 1930s lowered demand, lowered trade, decreased lending and decreased asset prices. All of this created debt deflation and depression.

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