Impacto da china no sistema de comércio mundial

China e o World Trading System.

Anexado é o texto completo do discurso proferido pelo Director-Geral da OMC, Renato Ruggiero, mais cedo (21 de abril) na Universidade de Pequim, na China.

Existe uma realidade simples que está no cerne das nossas negociações atuais e dos verdadeiros desafios do ajuste que todos enfrentamos: a realidade de que a China já é um poder líder em uma economia global cada vez mais interdependente. A China precisa cada vez mais de oportunidades e segurança do sistema da OMC para cumprir seu enorme potencial de crescimento e desenvolvimento. E a OMC precisa cada vez mais da China como um membro pleno e ativo para ser um sistema verdadeiramente universal.

Esta realidade é enfatizada pela enorme força do aumento da China no mundo. Durante a última década, a produção aumentou em média 10% ao ano, enquanto o volume de exportação de mercadorias cresceu ainda mais rápido, com cerca de 15%. Em duas décadas, o valor das exportações de mercadorias da China expandiu mais de vinte vezes, chegando a US $ 151 bilhões no ano passado. A China já é a quinta maior potência comercial do mundo e o segundo maior receptor de investimentos estrangeiros. Hoje, a economia chinesa representa entre 5 a 10 por cento da produção global, dependendo do método utilizado para calcular a produção nacional.

À medida que a economia da China se expande para o futuro, também os seus laços com a economia global. A dependência dos mercados de exportação continuará a crescer rapidamente, e não só para produtos intensivos em mão de obra, como calçados e brinquedos, mas para bens e serviços de tecnologia superior que são uma proporção cada vez maior da produção da China à medida que ele escala a escala de produção. As importações também aumentarão, em parte, para estimular a industrialização e a modernização, mas também em resposta à demanda dos consumidores. E uma rede cada vez maior de investimentos externos e externos atrairá a China para o sistema financeiro global.

Estima-se que a modernização da China exigirá importações de equipamentos e tecnologia de cerca de US $ 100 bilhões anuais, e as despesas de infraestruturas durante a segunda metade dessa década podem ascender a US $ 250 bilhões. Isso não deve mencionar a crescente demanda por energia, recursos minerais, alimentos e importações agrícolas, que, apesar do tamanho e recursos da economia chinesa, não podem ser satisfeitas apenas pela produção doméstica.

O fato básico é que a China está se movendo para o centro do processo de globalização, e a China e outras nações se beneficiam disso. Vivemos em um mundo onde a tecnologia, o capital e o comércio se movem cada vez mais livremente; onde as ferramentas econômicas antigas perderam sua vantagem; e onde a força econômica e a segurança dependem cada vez mais da abertura econômica e da integração. O caminho da China para o crescimento e a modernização também é um caminho para a interdependência.

Esse processo de globalização não será revertido - ele vai acelerar. Em todo o mundo, as forças econômicas e tecnológicas estão quebrando paredes, atravessando as fronteiras e unindo uma única economia mundial. No final do século XX, as nossas novas oportunidades, bem como os nossos desafios - no comércio, na economia, em todas as facetas da política internacional - surgem dos nossos mundos se aproximando, não mais separados. O aprofundamento da interdependência é a realidade central para a China e para o mundo. Gerenciar a interdependência é nossa responsabilidade compartilhada.

Um passo fundamental para completar essa interdependência é levar a China ao sistema comercial multilateral. As relações econômicas da China com o mundo são simplesmente muito grandes e abrangentes para gerenciar efetivamente através de um labirinto de acordos bilaterais, cambiantes e instáveis ​​bilaterais. A melhor garantia da China de políticas comerciais internacionais consistentes e consistentes é encontrada dentro do sistema multilateral baseado em regras.

Da mesma forma, a China, como todos os outros países, pode gerenciar melhor suas crescentes relações econômicas com o mundo com base em direitos e obrigações acordados por consenso e refletidas em regras e disciplinas executórias. Esta é a única maneira de resistir às pressões ou ameaças bilaterais de ações unilaterais. É também a única maneira de sustentar e promover a reforma econômica doméstica sabendo que os esforços da China nessa direção estão sendo acompanhados por seus parceiros comerciais, membros da OMC, que compartilham as mesmas obrigações nos termos dos acordos da OMC.

A adesão à OMC significa assumir obrigações vinculativas em relação às políticas de importação - obrigações que exigirão um ajuste nas políticas comerciais da China e, na maioria dos casos, a reestruturação econômica. Mas, por sua vez, a China se beneficiará da extensão de todas as vantagens que foram negociadas entre os 130 membros da OMC. Terá o direito de exportar seus produtos e serviços para os mercados de outros membros da OMC às taxas de direitos e níveis de compromisso negociados na Rodada Uruguai - isso inclui consolidação tarifária que beneficia quase 100 por cento das exportações chinesas de produtos industriais para países desenvolvidos , com quase metade dos produtos sujeitos a tratamento isento de impostos. Essas tremendas oportunidades de acesso ao mercado serão sustentadas e reforçadas pelos dois princípios fundamentais da nação mais favorecida e da não discriminação.

Do ponto de vista igualmente importante, a China recorrerá a um fórum multilateral para discutir os problemas comerciais com os parceiros da OMC e, se necessário, com um procedimento vinculativo de resolução de litígios se os seus direitos forem prejudicados. Este maior nível de segurança beneficiará a China imensamente - incentivando uma maior confiança das empresas e atraindo níveis ainda maiores de investimento.

Existe uma terceira razão importante para a participação da China no sistema multilateral. Somente dentro do sistema, a China pode participar da redação das regras comerciais do século XXI. Este será um conjunto sem precedentes de direitos e obrigações negociados internacionalmente por consenso.

O poder duradouro do sistema multilateral é o seu poder de evoluir. Em 1994, concluímos a Rodada Uruguai do GATT que, na época, era o acordo mais ambicioso e de longo alcance na cinquenta anos de história do sistema econômico internacional. Apenas três anos depois, avançámos para negociar acordos pioneiros para liberalizar o setor global de telecomunicações e remover tarifas sobre o comércio de produtos de tecnologia da informação - cujo valor combinado, em cerca de US $ 1 trilhão, corresponde ao comércio global de agricultura, automóveis e têxteis combinados. E seu valor ultrapassa os números do comércio; Ao abrir o acesso ao conhecimento, à comunicação e às suas tecnologias, estamos abrindo o acesso às matérias-primas mais importantes do novo século. Isto será de imensa importância para o desenvolvimento e a competitividade de todas as economias, e não a China.

Há todos os sinais de que também podemos concluir um acordo multilateral sobre serviços financeiros até o final deste ano - outra área em que estamos negociando no futuro. E isso não significa nada sobre as negociações da OMC sobre agricultura, serviços e outros setores, que serão retomadas em três anos.

Uma China que olha para o exterior não pode se dar ao luxo de ficar à margem enquanto outros escrevem as regras do jogo. Uma China com interesses de exportação crescentes não pode deixar de ser segura e expandir o acesso aos mercados globais - segurança que apenas o sistema multilateral oferece. E talvez o mais importante, uma China dependente da tecnologia e da modernização não pode dar ao luxo de atrasar o ritmo acelerado da globalização - particularmente em setores como tecnologias de informação, telecomunicações ou serviços financeiros, que serão os principais blocos de construção da nova economia.

O sucesso econômico da China até agora está diretamente ligado às suas impressionantes reformas domésticas, incluindo a liberalização do comércio e do investimento. A China já se beneficiou das reduções tarifárias unilaterais oferecidas no contexto das negociações de adesão; um estudo coloca os ganhos em US $ 22 bilhões. Mas este não é o fim da estrada. Uma maior liberalização - realizada com base nas regras da OMC, e em troca de benefícios de outros parceiros da OMC - poderia ser o maior estímulo ainda para o crescimento econômico da China. E, por extensão, um estímulo gigante para a economia mundial.

Não estou sugerindo que juntar-se à OMC é um passo simples. Simplesmente o contrário. Mas muitos outros países que já são membros da OMC compartilham um nível comparável de desenvolvimento com a China. Eles subscreveram seus direitos e obrigações e aproveitam seus benefícios. Os outros candidatos à adesão também estão mostrando que eles fizeram a mesma escolha.

A atração da OMC reside precisamente na força e consistência de seus direitos e obrigações - que continuamos ampliando e aprofundando com a expansão e integração da economia global. Há cinquenta anos, o foco era apenas as tarifas e outras medidas de fronteira; Hoje, as regras da OMC se estendem bem dentro da fronteira, abrangendo padrões técnicos, serviços, propriedade intelectual, investimentos relacionados ao comércio e uma série de outras políticas econômicas que antes eram consideradas domésticas. Há cinquenta anos, quase todos os membros do GATT eram do mundo industrializado; dos 130 membros da OMC de hoje, oitenta por cento são países em desenvolvimento ou economias em transição.

A crescente complexidade das regras e a diversidade de membros, longe de enfraquecer a OMC, fortaleceu-a. Ao passar a uma participação mais ampla, fizemos mais do que adicionar uma nova regra aqui ou um novo membro lá. Criamos uma rede em expansão de interesses e responsabilidades interligadas - um sistema que cresce mais vital para todos os nossos interesses comerciais à medida que se fortalece.

É porque a adesão da China à OMC moldará profundamente a evolução futura e a direção das relações econômicas globais, que devemos obter o processo correto. A China é muito grande e importante, um jogador econômico - e sua entrada na OMC terá um impacto muito grande no sistema - para comprometer essas negociações.

Recentemente vimos sinais importantes de impulso e flexibilidade criativa que vimos recentemente nessas negociações - em áreas difíceis como direitos comerciais, não discriminação, barreiras não tarifárias, comércio estadual, investimento e propriedade intelectual, onde os negociadores fizeram progressos bastante notáveis, especialmente nos últimos meses. Nada desse progresso teria sido possível sem a base de base técnica - se consome tempo - técnica que todas as partes nesta negociação estabeleceram durante a década anterior. Mas o que realmente está direcionando este processo é um reconhecimento compartilhado das recompensas que estão no sucesso.

Meu objetivo não é subestimar o trabalho que temos diante de nós, especialmente quando abordamos a próxima sessão de negociação agendada em maio deste ano. Como todas as negociações, grande parte do trabalho importante - e os problemas mais difíceis - foram deixados até o fim. Meu propósito é, em vez disso, exortar todos os envolvidos a redobrar seus esforços - e esticar sua imaginação - agora que podemos afirmar que está entrando na fase final e há uma necessidade amplamente compartilhada de avançar com urgência. Ainda existem questões cruciais relativas aos termos de adesão da China à OMC. Igualmente importante, existem as negociações bilaterais de adesão ao mercado com os principais parceiros comerciais da China, que, como você sabe, são um elemento crítico e essencial de qualquer negociação bem-sucedida. Mais uma vez devemos lembrar que a posição da China como o 5º exportador mundial reforça a necessidade de seu próprio mercado ser acessível aos outros. Estas são todas questões importantes que precisarão ser resolvidas para a satisfação de todos antes que a China possa ser trazida para a OMC.

Ao longo do período de processo de adesão da China, a Secretaria do GATT / OMC está pronta para facilitar as negociações e para prestar qualquer assistência que seja necessária em todas as frentes possíveis. Não consigo acrescentar que este compromisso da Secretaria seja igualmente firme à medida que abordamos as etapas finais do processo de adesão.

Os desafios futuros não alteram a realidade básica de que nenhum aspecto das relações econômicas e comerciais da China será mais fácil de tratar fora do sistema multilateral. Pelo contrário, tudo seria mais difícil, para a China e seus parceiros - mais arbitrária, discriminatória e baseada em poder. Ninguém pode querer esse cenário.

O debate internacional sobre a globalização ilustra vívidamente este último ponto. Implicidade ou explicitamente, a China está se movendo para o centro desse debate. A maravilha não é que as negociações de adesão tenham sido tão longas e tão complexas. A maravilha é que este imenso país se moveu até agora no mercado principal da economia global em tão pouco tempo.

As paredes que nos dividiram estão caindo; mas alguns ainda vêem disparidades e diferenças, ao invés de nossos interesses comuns. A globalização está tecendo o mundo como nunca antes; mas é um mundo de diferentes culturas, diferentes sistemas e diferentes níveis de desenvolvimento.

A interdependência exige que respeitamos nossas culturas e civilizações únicas. A interdependência também exige que encontremos soluções comuns aos nossos problemas comuns. Estas incluem as preocupações dos principais parceiros comerciais da China sobre os seus excedentes comerciais persistentes. Do mesmo modo, o mundo terá que entender o imenso desafio que a China enfrenta ao transformar-se com uma sociedade moderna e competitiva - e tudo em questão de décadas. A China não está sozinha em fazer esse esforço de reestruturação. A globalização obriga todas as nações, pequenas ou grandes, ricas ou pobres, a participar de um contínuo processo de ajuste. Mais do que nunca, os problemas do mundo serão os problemas da China; e os problemas da China serão os do mundo.

No entanto, nosso mundo de mudanças dramáticas é também um mundo de possibilidades dramáticas. O padrão de vida da China dobrou na última década e, sem dúvida, duplicará e triplicará novamente. Novas oportunidades estão se abrindo para trabalhadores chineses e empresários chineses. Novas escolhas estão se abrindo para os consumidores chineses. E desta abertura econômica surge uma nova esperança. Eu argumentaria, a partir da evidência do enorme sucesso da reforma até o momento, que o custo real seria manter as portas fechadas, diminuir o processo de reestruturação e manter estruturas públicas ineficientes.

O que é verdade para a China é verdadeiro para o mundo. A economia global poderia facilmente duplicar até 2020, aumentando o nível de vida global em quase dois terços - entre os maiores avanços da história mundial. A tecnologia e as comunicações estão unindo um planeta interligado, espalhando as ferramentas do progresso econômico e social e igualando a condição humana. E estamos quebrando as barreiras, não apenas entre as economias, mas entre as pessoas, dando-nos um interesse comum na prosperidade e na paz.

Devemos ser claros sobre o que está em jogo: a entrada da China no sistema de comércio global é mais do que o comércio. É sobre o futuro da China como líder econômico mundial. E é sobre a direção futura da economia global e da nossa comunidade global.

Comecei dizendo que estamos em um ponto de viragem nas relações da China com o mundo. Um desses momentos da história, que vem, mas raramente, quando as escolhas formamos o curso dos eventos por anos e até décadas. A paisagem da Guerra Fria foi varrida, como por um terremoto histórico. A próxima era da globalização ainda não se formou. Temos uma oportunidade única - entre eras e entre séculos - para lançar as bases de um novo tipo de sistema internacional, um dos quais oferece as melhores oportunidades de prosperidade e paz mundiais duradouras. Pela primeira vez, temos a nossa disposição a possibilidade de criar um sistema universal baseado em direitos e obrigações acordados por consenso e vinculando todos os seus membros.

Eu repito: a integração bem sucedida da China na economia global é a chave para muitos dos desafios internacionais que enfrentamos. Precisaremos de criatividade nos próximos dias. Nós precisaremos de resolver. E precisamos de visão. A mudança virá se nós gostamos ou não. Nós podemos comprometê-lo positivamente e dirigi-lo para fins positivos ou ignorá-lo para o nosso perigo. A escolha que temos diante de nós é óbvia.

Eu vim para a China, não como um negociador, mas como um homem com um interesse - para ajudar a construir um sistema comercial verdadeiramente global que pode suportar o peso do século XXI. Deixo-vos com a mensagem de que a China deve ser um pilar central deste sistema - caso contrário, arriscamos a construir o novo século sobre os fundamentos da instabilidade econômica e uma paz ainda mais incerta. Estou confiante de que a China irá trazer uma visão igualmente ampla para essa tarefa.

Papel da China na OMC.

No 10º aniversário da entrada da Organização Mundial do Comércio da China, o diretor-geral da OMC, Pascal Lamy, destaca o significado da adesão do país.

Fundada em 1995, a Organização Mundial do Comércio (OMC) é a única organização internacional global que gerencia as regras comerciais entre os países. Ao fornecer um fórum para os governos negociarem acordos comerciais e resolver disputas comerciais, a organização pretende ajudar os governos a resolver seus problemas comerciais. A OMC é uma organização baseada em regras e associada a membros com 153 países membros. A China aderiu à OMC em 11 de dezembro de 2001.

Para marcar o décimo aniversário da entrada da China na OMC, o diretor-geral da OMC, Pascal Lamy, discutiu recentemente o papel da China na OMC com a Editor da CBR, Paula M. Miller. O quinto diretor-geral da OMC, Lamy iniciou sua primeira consulta de quatro anos em setembro de 2005 e seu segundo mandato de quatro anos em setembro de 2009. Foi comissário de comércio na Comissão Européia em Bruxelas, na Bélgica, de 1999 a 2004.

Os primeiros 10 anos de adesão à OMC da China coincidiram com o notável crescimento econômico e comercial no país. Quanto do boom pode ser diretamente vinculado à adesão da OMC da China?

Lamy: Esta é uma pergunta muito difícil de responder. O que sabemos é que, de 2001 a 2018, as exportações da China aumentaram quase 6 vezes para cerca de US $ 1,57 trilhões, enquanto as importações subiram quase a mesma ordem de ordem de US $ 1,39 trilhão.

Certamente, o acesso ao mercado que a China recebeu como resultado da sua adesão à OMC contribuiu para o seu desempenho comercial. Taxas mais baixas sobre as importações também estimulariam as compras de bens estrangeiros. Mas outros fatores ajudaram. As reformas que a China empreendeu como parte de seu processo de adesão melhoraram a eficiência econômica e impulsionaram o crescimento. A adesão à OMC também proporcionou aos investidores estrangeiros garantias de que a China fazia parte de um sistema de regras e disciplinas internacionais. Além disso, os investidores estrangeiros encontraram um enorme mercado doméstico no qual oferecer seus bens e serviços. Os fluxos de investimento estrangeiro direto aumentaram exponencialmente de praticamente zero no início da década de 1990 para US $ 108 bilhões em 2009. Isso é importante porque mais de metade das exportações da China são provenientes de subsidiárias ou agências de empresas estrangeiras na China. As vendas dessas afiliadas aumentaram de US $ 10 bilhões em 1990 para US $ 545 bilhões em 2009. Portanto, a definição precisa do impacto da adesão da China à OMC é difícil, mas, sem dúvida, a contribuição para o crescimento da China tem sido significativa.

O que a adesão à OMC da China significa para o sistema de comércio global?

Lamy: Assim como a OMC teve um impacto significativo no desenvolvimento da economia da China, a adesão da China tornou a organização mais forte. Certamente, a adesão contribuiu para que a China se tornasse o maior exportador mundial de mercadorias e o segundo maior importador desses bens. Este último ponto é importante porque a crise que atingiu a economia global em 2008-09 levou a uma severa contração das economias da Europa Ocidental e da América do Norte. Com esses mercados consumindo menos, os exportadores precisavam procurar outros países para o crescimento das exportações. Isso era verdade para os exportadores norte-americanos, japoneses e europeus, mas também era verdade para os países em desenvolvimento exportadores. A China pegou uma grande quantidade de folga, e esse foi um fator importante para evitar que a recessão global se alargasse e se aprofundasse.

A entrada da China na OMC também facilitou um maior comércio Sul-Sul [comércio entre países em desenvolvimento]. Hoje, o comércio Sul-Sul compreende mais de 20% do comércio global, e esse número está aumentando rapidamente. Em 2018, por exemplo, o comércio total por países em desenvolvimento cresceu cerca de 17% (contra 13% para os países desenvolvidos). Em 2018, os economistas da OMC prevêem uma expansão comercial global de 6,5%, com o comércio geral por países em desenvolvimento para todos os parceiros comerciais, expandindo 9,5%, muito mais do que o crescimento previsto de 4,5% no mundo desenvolvido. Assim, em termos de expansão do comércio e mudança de fluxos comerciais, a adesão da China teve um impacto dramático. Outros países em desenvolvimento - como Brasil, Índia, África do Sul e Indonésia - também estão aumentando rapidamente e exagerando maior influência na arena da OMC. Este aumento dos países em desenvolvimento - com a China em seu centro - mudou o equilíbrio de poder dentro da OMC.

Ter outro poder comercial na OMC também levou a algumas fricções. A China, por exemplo, é o terceiro participante mais ativo no processo de solução de controvérsias da OMC, depois dos Estados Unidos e da União Européia.

Quais são algumas das mudanças mais importantes relacionadas ao comércio que você viu que a China faz durante sua adesão à OMC? Qual é o compromisso mais significativo da OMC que a China implementou?

Lamy: Houve um grande número dessas mudanças. Entre as mudanças significativas estão a expansão do comércio de subsidiárias e filiais de propriedade estrangeira, o papel da China no centro da cadeia de produção e produção global cada vez maior, e a mudança de país subiu a cadeia de valor em termos de produção. Os custos trabalhistas da China estão aumentando e seu salário mínimo está programado para dobrar até 2018. Mesmo agora, os custos trabalhistas da China são mais altos do que a maioria dos outros países em desenvolvimento na Ásia-apenas na Malásia e na Tailândia e # 8217 são maiores. Isso significa que as empresas chinesas estão começando a procurar outros locais para produzir seus bens. O investimento têxtil chinês na África e Bangladesh está crescendo rapidamente, por exemplo.

Em termos de compromissos assumidos pela China, não gostaria de classificá-los em ordem de significância, mas concordando em implementar um cronograma tarifário em que a tarifa média sobre os produtos manufaturados é de 9% [abaixo de 24% antes da China & # 8217; s Adesão à OMC] e as tarifas médias nas importações agrícolas são de 15% [abaixo de 24,6% antes da adesão à China] era altamente significativa. Estes números são muito inferiores aos de muitos outros países em desenvolvimento e a taxa de tarifas agrícolas é mesmo inferior à de muitos países desenvolvidos.

Quais são os compromissos mais significativos da OMC que a China não conseguiu implementar ou implementar plenamente?

Lamy: Como um diretor-geral neutro, não é para mim avaliar isso. A China fez muito bem em termos de implementação de sua longa lista de compromissos. Mas nenhum país está acima da crítica. Nosso mecanismo de revisão da política comercial [TPR] oferece aos membros da OMC a oportunidade de avaliar e criticar as políticas comerciais das pessoas em análise. A China, como um dos quatro maiores comerciantes, tem uma revisão TPR a cada dois anos. O que posso dizer é que os membros se queixaram de certos setores de serviços não serem suficientemente abertos e que a proteção dos direitos de propriedade intelectual [IPR] precisa ser melhorada.

Como a China se compara a outros membros da OMC como um usuário de medidas de remédio comercial, como direitos antidumping e compensatórios?

Lamy: a China se absteve de usar remédios comerciais nos primeiros anos de sua adesão à OMC. Nos últimos anos, no entanto, vimos o aumento de freqüência. A China é um dos países que iniciaram as investigações mais antidumping. Em 2009, a China ficou em quinto lugar entre os membros da OMC no início de ações antidumping. Em 2018, a China ficou em sexto lugar, mas o número de iniciações em 2018 (8 casos) foi muito inferior ao de 2009 (17 casos). Claro, há uma distinção entre os casos iniciados e as medidas finais aplicadas. É claro que a China tornou-se um usuário freqüente de instrumentos de remédios comerciais.

Também é claro que, em 2009 e 2018, a China foi, de longe, o maior alvo de investigações antidumping (77 investigações em 2009 e 43 em 2018) e medidas compensatórias (13 medidas em 2009 e 6 em 2018) aplicadas às exportações chinesas alegadamente subsidiadas.

A China ofereceu seu segundo lance para aderir ao Acordo de Compras Governamentais (GPA) da OMC no ano passado. Embora o segundo lance tenha sido considerado melhor do que a oferta inicial de 2007, algumas questões permanecem. Quando você acha que a China vai se juntar ao GPA, e quais são as maiores barreiras que enfrenta para tentar fazer isso?

Lamy: Eu nunca faço previsões sobre o tempo para assuntos como esse, mas acho que, quanto antes, melhor. A China fez ofertas iniciais e agora está preparando uma revista. Tornar parte do GPA faz parte dos compromissos assumidos pela China após a adesão. E é um cenário win-win: Bom para a China, porque ganhará valor por seu dinheiro nas compras públicas, e é bom para o resto da adesão à OMC, pois dará aos países acesso ao enorme mercado de contratos públicos da China. Em termos de barreiras, talvez um elemento de complicação seja o vasto tamanho e a complexa rede de práticas e políticas de compras nacionais, provinciais e locais da China.

A adesão formal da China à OMC também o tornou signatário de outros acordos, incluindo o Acordo da OMC sobre os Aspectos dos Direitos de Propriedade Intelectual relacionados com o Comércio (TRIPs). Apesar da adesão da China a esse acordo, a proteção dos DPI continua sendo uma questão altamente controversa entre a China e outros países. Como você avaliaria o progresso da China no IPR desde que se juntou à OMC e qual o papel que você pretende que o TRIPs e a OMC joguem no futuro progresso dos DPI?

Lamy: como sabemos, a aplicação da propriedade intelectual representa desafios significativos para muitos países. A China é um país enorme, com muitas decisões nas mãos das autoridades provinciais e municipais. Por conseguinte, não é difícil imaginar os desafios da aplicação dos DPI. O meu próprio sentido é que a China melhorou sua proteção e aplicação dos DPI recentemente, mas também acredito que é possível fazer mais. Eu acredito que este é um sentimento compartilhado pelo próprio governo chinês - uma razão importante para isso é o fato de que a proteção dos DPI também é do próprio interesse da China. A China está desenvolvendo rapidamente patentes, marcas registradas e direitos autorais próprios. Como um meio de encorajar inovação e invenção, são necessários incentivos. Isso significa que o inventor precisa da garantia de que ele ou ela irá manter os direitos de propriedade e que, se for um sucesso, o inventor se beneficiará.

Quanto à sua última pergunta, vejo o acordo TRIPs como um grande passo em frente no progresso geral do IPR. E acredito que os membros da OMC continuarão a analisar e melhorar as disposições do acordo TRIPs para manter o desenvolvimento rápido da tecnologia.

Recentemente, muitos observadores nos Estados Unidos concentraram-se no papel de empresas estatais e # 8220; empresas apoiadas pelo estado & # 8221; na economia da China. As empresas chinesas muitas vezes se beneficiam de preferências, como o financiamento favorável, independentemente da sua estrutura de propriedade, no entanto. Qual o papel da OMC em abordar esses tipos de benefícios que afetam a existência de condições equitativas na China?

Lamy: A OMC tem acordos específicos que explicam a forma como os subsídios podem ser utilizados. De um modo geral, a regra é que os subsídios não podem prejudicar a posição de concorrentes estrangeiros na China ou em mercados de países terceiros. Quanto aos detalhes da situação chinesa, isso tem sido um assunto de atividade de solução de controvérsias, por uma questão de prudência, eu vou abster-me de comentar.

O que você espera ver nos próximos 10 anos da adesão à OMC da China? Qual o papel que você imagina que a China jogue na evolução contínua da OMC e do sistema de comércio mundial, a OMC ajuda a arbitrar?

Lamy: a China continuará a crescer e sua influência se expandirá. Isso é verdade. A China é única e, de certa forma, resiste à definição convencional. É um país em desenvolvimento com cidades de classe mundial em sua costa que oferecem tudo o que você pode encontrar em um país desenvolvido. A China é o maior exportador do mundo e a segunda maior economia, mas a renda média ainda está muito abaixo da das economias avançadas. Os salários estão aumentando e as pessoas estão prosperando, mas 36 milhões de famílias permanecem abaixo da linha de pobreza. Devido a esta complexidade, é de vital importância para a China pensar que o seu papel no sistema comercial multilateral, com a sua força recém-adquirida, também vem com novas responsabilidades. Como um dos principais atores da OMC, outros países têm grandes expectativas para a China e espero que a China continue a desempenhar um papel construtivo na evolução da OMC. É no interesse fundamental da China fazê-lo.

Quais os principais desenvolvimentos que você vê no futuro da OMC, e quando você espera que a Rodada de Doha (a atual rodada de negociação comercial da OMC) termine?

Lamy: Eu acredito que o trabalho da OMC em vigilância e monitoramento e sua atividade de solução de controvérsias permanecerão vibrantes e ativos nos próximos anos. O papel de coordenação da OMC no programa de Ajuda para o Comércio continuará a ser importante também. No que se refere à função de negociação da OMC e, em particular, à Rodada de Doha, a imagem parece menos clara. Estamos testemunhando um impasse no papel de negociação da OMC. Este impasse é evidente entre economias desenvolvidas e emergentes. Os países desenvolvidos acreditam que as economias emergentes devem fazer mais contribuições. As economias emergentes acreditam que outras concessões não devem significar alinhar-se com os países desenvolvidos. É importante que examinemos juntos as causas que levaram a esta situação e o papel que pensamos que a OMC deveria desempenhar no século XXI.

Qual o papel que você acha dos acordos comerciais sub-globais, como a Cooperação Econômica da Ásia-Pacífico (APEC), na definição da agenda da OMC?

Lamy: a APEC desempenhou um papel importante no apoio à OMC e à Agenda de Doha para o Desenvolvimento. No caso da APEC, é claro que os papéis desse grupo e da OMC são complementares. Um bom exemplo disso é a facilitação do comércio, onde a APEC fez um trabalho muito bom para simplificar e harmonizar os procedimentos aduaneiros. Isso levou a tempos de remoção mais rápidos, mais comércio e crescimento mais rápido.

Existem cerca de 300 acordos comerciais preferenciais regionais, plurilaterais e bilaterais no momento em que diferem em natureza e conteúdo. Como dissemos no nosso Relatório de Comércio Mundial recentemente divulgado, os governos entram em acordos de comércio preferencial (PTA) como este por uma variedade de razões, mas o que é cada vez mais evidente é que buscar tratamento tarifário preferencial por si só não pode explicar os PTAs. Quase 85 por cento do comércio mundial ocorre na tarifa da OMC em vez de uma menor taxa de PTA & # 8230; É claro, no entanto, que tais fóruns estão sendo usados ​​para desenvolver regras e regulamentos regionais, e que esta web, ou tigela de macarrão, de regulamentos pode confundir muitos empresários que acham o custo e o aborrecimento de negociação sob tantos conjuntos de regras diferentes simplesmente não vale a pena. Isso explica por que uma pesquisa do Asian Development Bank descobriu que apenas uma quarta das empresas pesquisadas realmente usava as preferências comerciais disponíveis para elas.

Tendo dito tudo isso, é evidente que, enquanto a Rodada de Doha continuar a lutar, os governos procurarão abrir mercados por outros meios. Eventualmente, teremos que passar da coexistência com os PTAs para uma maior coerência. Enquanto isso, é crucial obter uma melhor compreensão do que esses acordos contêm, fazendo uso pleno do mecanismo de transparência da OMC.

Sistema Financeiro e Políticas Monetárias da China: o impacto nas taxas de câmbio dos EUA, nos mercados de capitais e nas taxas de juros.

109º Congresso: segunda sessão.

Senhor Presidente e membros da Comissão, agradeço a oportunidade de discutir o sistema financeiro e a política monetária da China, seu impacto nos Estados Unidos e a relação entre o sistema financeiro da China e a política doméstica chinesa. Estas são questões complexas e só tocarei a superfície hoje, mas espero abordar as ideias centrais e oferecer algumas recomendações de políticas consistentes com uma ordem econômica internacional liberal - o que, acredito, é essencial para a segurança econômica dos EUA e para o desenvolvimento pacífico da China.

Perguntas principais.

Deixe-me começar abordando brevemente as quatro perguntas que você perguntou aos membros deste painel - "O impacto macroeconômico das políticas financeiras chinesas nos Estados Unidos" - para considerar.

1. O equilíbrio atual é sustentável? Ou seja, estamos em uma Nova era de Bretton Woods? Ou, precisamos de um novo Acordo Plaza-Louvre para gerenciar o ajuste?

O "equilíbrio presente" é um equilíbrio apenas no sentido de um status quo. Em um sentido econômico, é um desequilíbrio devido à repressão financeira na China e ao desminanço do governo nos Estados Unidos. O status quo é sustentável apenas na medida em que a China e o resto do mundo estão dispostos a acumular ativos em dólares para financiar nossos déficits gêmeos.

Podemos estar em uma "Nova Era de Bretton Woods" no sentido de que a China e outros países asiáticos agrupam suas moedas no dólar como uma moeda de reserva chave, mas a analogia com o sistema original de Bretton Woods está fora de lugar. Não existe uma âncora dourada no sistema atual de fundos fiduciários, e os fluxos de capital privado e as taxas de câmbio flutuantes mudaram fundamentalmente a natureza da arquitetura financeira global. 1 O Fundo Monetário Internacional (FMI) tem procurado uma nova identidade desde o colapso do sistema Bretton Woods de taxas de câmbio "fixas mas ajustáveis" no outono de 1971, quando os Estados Unidos fecharam a janela de ouro e suspenderam a convertibilidade. A crise do peso mexicano em 1994-95 e a crise monetária asiática em 1997-98 resultaram em grande parte devido ao excessivo crescimento monetário interno e aos sistemas de taxas de câmbio vinculados nos países em crise. 2 Desde então, muitos países de mercados emergentes adotaram metas de inflação e taxas de câmbio flutuantes. Tentando formar um novo sistema liderado pelo FMI de taxas de câmbio gerenciadas com a intervenção do banco central seria um passo para trás em vez de encaminhar. 3.

Não precisamos de um novo Acordo Plaza-Louvre para gerenciar desequilíbrios globais. Assim como a abordagem das negociações para a liberalização do comércio fica atolada na burocracia global, a coordenação liderada pelo governo das taxas de câmbio não é melhor. Há muitos outros jogadores hoje do que na década de 1980, quando a China ainda estava na liga menor. Uma via mais segura para o ajuste bem sucedido é que cada país se concentre na estabilidade monetária, reduza o tamanho e alcance do governo e expande os mercados. Os acordos internacionais são difíceis de aplicar, e ninguém realmente sabe qual seria a matriz correta de taxas de câmbio. Milhões de comerciantes descentralizados nos mercados cambiais são muito melhores na descoberta de preços relativos do que os funcionários do governo que são propensos a proteger grupos de interesse especiais. Os Estados Unidos, por exemplo, querem que o yuan (também conhecido como renminbi [RMB]) flutue, mas apenas em uma direção.

2. Quais são as chances de um ajuste ordenado versus desordem? Quais são as implicações de cada um para os mercados de capitais dos EUA?

Se a China continuar a abrir seus mercados de capitais e tornar seu regime cambial mais flexível, ele poderá eventualmente usar a política monetária para alcançar a estabilidade de preços a longo prazo. 4 Atualmente, o People's Bank of China (PBC) deve comprar dólares (fornecer RMB) para fixar o RMB ao dólar e, em seguida, retirar o excesso de liquidez vendendo títulos principalmente a bancos estatais. Esse processo de "esterilização" coloca pressão sobre as taxas de juros, o que, se permitido aumentar, atrairia entradas adicionais de capital. O PBC tem, portanto, um incentivo no sistema atual para controlar as taxas de juros e confiar em meios administrativos para gerenciar o crescimento do dinheiro e do crédito. Mas quanto mais esse sistema persistir, maiores serão as reservas de câmbio da PBC e mais pressão haverá para uma apreciação da taxa RMB / dólar.

A reavaliação de 21 de julho de 2005 e uma série de mudanças no cenário institucional para estabelecer novos mecanismos para os criadores de mercado e as operações de hedge são passos na direção certa. A liberalização financeira levará tempo, e a China se moverá em seu próprio ritmo. Os Estados Unidos devem ser pacientes e realistas. A maioria dos custos da moeda subvalorizada da China são suportados pelos chineses. Colocar tarifas proibitivamente elevadas sobre os produtos chineses até que a taxa RMB / dólar possa apreciar substancialmente não é uma opção realista. Isso taxaria injustamente os consumidores americanos, não corrige o déficit geral da conta corrente dos EUA (ou mesmo nosso déficit comercial bilateral com a China) e uma lenta liberalização. 5.

O ajuste exige que a China não só permita uma maior flexibilidade na taxa de câmbio, mas também permita que os chineses convertam livremente o RMB em moedas ou ativos que eles escolham. A liberdade de capital é um direito humano importante e ajudaria a minar o monopólio do poder do Partido Comunista Chinês ao fortalecer os direitos de propriedade privada. Uma ordem econômica internacional mais liberal é mais flexível, baseada em preços determinados pelo mercado, dinheiro sólido e o estado de direito. Devemos ajudar a China a se mover nessa direção não por ameaças, mas por exemplo. O governo dos EUA deve começar reduzindo seus gastos excessivos e eliminando impostos onerosos sobre economia e investimento.

Um ajuste ordenado com base em princípios de mercado-liberal ajudaria a aliviar os custos para a economia global e para os Estados Unidos em particular. Manter nossos mercados abertos envia um sinal importante para o resto do mundo, e fazer com que nossa casa fiscal seja ordenada - ao cortar o tamanho do governo e pela reforma tributária real - mostraria que nos referimos a negócios. Reverter para o protecionismo, por outro lado, teria um impacto negativo no sistema financeiro global, e o ajuste seria mais lento e mais caro. 6.

3. Qual é a probabilidade de a China tentar diversificar suas participações em moeda estrangeira? Como eles fariam isso? Quais seriam as conseqüências?

A composição das reservas cambiais da China é um segredo de estado, mas uma estimativa razoável é que cerca de 80% das reservas de US $ 941 bilhões da China são mantidas em ativos denominados em dólares, especialmente títulos do governo dos EUA. Qualquer revalorização única considerável da taxa RMB / dólar imporia grandes perdas à China. Outros bancos centrais da Ásia também sofrerão perdas em suas reservas em dólar à medida que o valor ponderado pelo comércio do dólar caiu. Ninguém quer ser o último a se diversificar em dólares. Se o euro se tornar mais desejável como moeda de reserva, espera-se que o PBC e outros bancos centrais asiáticos ocupem mais euros e menos dólares em suas carteiras.

O futuro do dólar será precário se os Estados Unidos continuem a gerar grandes déficits orçamentários e não abordarem seus enormes passivos não financiados. Bancos centrais estrangeiros não aguardam o dia do juízo final; eles começariam a se diversificar agora. Os mercados são regidos pelas expectativas, por isso é crucial que os Estados Unidos comecem a tomar medidas positivas para conseguir sua própria casa e para reafirmar seu compromisso com o liberalismo econômico.

Por sua vez, a China pode ajudar a restaurar os saldos globais, avançando para um regime de câmbio mais flexível e liberalizando as saídas de capital para que haja menos pressão do PBC para acumular reservas no exterior. O ajuste de atraso significa uma acumulação mais rápida de reservas, maior risco de perdas de capital através da manutenção de ativos em dólar e um incentivo mais forte para se diversificar. De fato, em um relatório recente, o Bureau Nacional de Estatística da China recomendou que o PBC aumentasse o ritmo de diversificação para reduzir o futuro perdendo o capital devido a uma superexposição ao dólar. 7.

Se a China começa a aumentar o ritmo da diversificação e os Estados Unidos não efetivamente resolvem seu desequilíbrio fiscal a longo prazo, o resultado seria taxas de juros mais altas dos EUA, exclusão do investimento privado e queda nos preços das ações.

4. Quais são as conseqüências prováveis ​​de uma falha no tratamento de desequilíbrios globais da conta corrente?

As consequências mais graves de não abordar os desequilíbrios globais da conta corrente seria a persistência do socialismo de mercado na China e do socialismo rasteiro nos Estados Unidos. O fracasso em enfrentar os desequilíbrios globais significa a falta de aceitação do liberalismo econômico. A China precisa avançar em direção a uma ordem liberal de mercado, o que significa que precisa de uma lei que proteja pessoas e bens, e os Estados Unidos precisam resistir ao protecionismo e reduzir o tamanho e o alcance do governo.

Embora seja útil considerar o impacto macroeconômico das políticas financeiras chinesas nos Estados Unidos, é bom lembrar que a China ainda é uma economia relativamente pequena (somente o orçamento federal dos EUA é maior que o PIB da China). O que mais importa para a economia dos EUA é buscar políticas monetárias e fiscais sólidas em casa. Se seguimos essas políticas e mantendo um sistema comercial aberto, a prosperidade dos EUA continuará.

Sistema Financeiro Reprimido da China.

Não há dúvida de que o sistema financeiro da China é reprimido: os controles de capital limitam a liberdade de escolha, a taxa de câmbio é subvalorizada e distorcida pela intervenção massiva do governo, as taxas de juros são fortemente regulamentadas, o setor privado é discriminado em favor das empresas estatais ( SOEs), bancos e empresas de segurança são principalmente de propriedade e controle do governo, e a corrupção é desenfreada.

A China tem mercados de capital mais restritos na Ásia. Os investimentos em carteira são fortemente controlados, assim como a maioria das outras transações da conta de capital. As mudanças estão ocorrendo, como o tratamento mais indulgente de investidores institucionais estrangeiros e domésticos qualificados, mas ainda há muito por fazer. 8 Um ranking de países asiáticos baseado no índice de restrição de capital da UBS indica que a China tem um longo caminho a percorrer antes de alcançar o grau de liberdade de capital de Hong Kong, de alto padrão (Figura 1). 9.

Fonte: Anderson, "Como pensar sobre a China (Parte 6)", 28 de novembro de 2005, p. 23, com base nas estimativas CEIC, FMI e UBS.

Ao reprimir dois preços macroeconômicos fundamentais - a taxa de juros e a taxa de câmbio - e ao não privatizar os mercados financeiros e permitir a liberdade de capital, os líderes da China desistiram de flexibilidade e eficiência para garantir que o Partido Comunista Chinês (CCP) mantenha seu poder . O objetivo é construir uma "economia de mercado socialista", não um verdadeiro mercado livre baseado em direitos de propriedade privada e no estado de direito. A restrição da liberdade econômica, incluindo a livre circulação de informações essenciais para mercados de capitais eficientes, inevitavelmente atrasa a liberdade pessoal e política.

A repressão financeira da China significa que o PBC não pode ter uma política monetária independente com o objetivo de alcançar a estabilidade de preços de longo prazo. Em vez disso, o PBC tem uma política esquizofrênica com o objetivo de gerenciar a taxa de câmbio e o nível de preços. Tal política é insustentável a longo prazo se a China quiser se tornar um centro financeiro de classe mundial com liberdade de capital. Além disso, à medida que a conta comercial cresce, torna-se mais difícil controlar os influxos de capital e "esterilizá-los" vendendo contas do banco central para evitar o novo dinheiro básico (criado quando o PBC compra dólares e outras moedas estrangeiras) criando dinheiro e crédito excessivos crescimento. 10.

O PCC enfrenta um dilema: pode manter o status quo, suprimindo a liberdade de capital para manter seu controle sobre o poder ou gradualmente normalizar os mercados de capitais da China e arriscar-se a perder poder. A melhor maneira de ajudar a China a se mover para o liberalismo de mercado, e longe do status quo, é manter uma política de engajamento em vez de sucumbir ao protecionismo destrutivo.

O caso para o liberalismo econômico.

O engajamento não significa ditar o que a taxa de câmbio RMB / dólar deve ser ou pedir um novo acordo de tipo Plaza-Louvre para corrigir desequilíbrios globais. Quando o Grupo das Cinco Nações Industrializadas, o G-5 (Estados Unidos, Reino Unido, Japão, Alemanha e França) se reuniram em 1985 para acordar ações coletivas para diminuir o valor cambial do dólar, a China não era um fator. As reservas cambiais do PBC foram de apenas US $ 12,7 bilhões (ver Figura 2), e a conta corrente global da China foi grosseira. A intervenção nos mercados de câmbio e as diversas mudanças nas políticas fiscais no G-5 ajudaram a reduzir o valor do dólar, mas o déficit da conta corrente dos EUA ainda atingiu um pico de 3,4% do PIB em 1987, altura em que o G - 6 reuniram-se em Paris para reverter o curso e intervêm para impedir o slide do dólar. 11.

A intervenção cambial é muitas vezes esterilizada e não tem efeito permanente sobre a taxa de câmbio real. O dólar já havia começado a cair contra as principais moedas antes do Acordo Plaza. O acordo de 1985 acelerou esse processo. O Banco do Japão (BOJ), no entanto, se dedicou à esterilização para compensar as vendas em dólares (levantamentos de ienes), limitando o impacto na taxa de ienes / dólar. Após o acordo de 1987, o BOJ comprou dólares e permitiu que a base monetária crescesse rapidamente, criando a economia de bolhas. A explosão da bolha em 1990, depois que o BOJ cortou fortemente o crescimento do dinheiro em meados de 1989. A lição é que a intervenção cambial pode causar estragos monetários. Os países que mais sofreu com a crise financeira asiática foram aqueles que tinham uma política monetária equivocada. 12 Como John Greenwood, economista-chefe da Invesco Asia, Ltd., observou: "A lição geral é que, para controlar o crescimento do dinheiro e do crédito dentro de intervalos razoáveis ​​que sejam compatíveis com baixa inflação no longo prazo, o valor externo da moeda deve ser livre para ajustar, especialmente para cima. "13.

Hoje, o déficit da conta corrente dos EUA aumentou para mais de 6% do PIB, a China é a terceira maior nação comercial do mundo, e os bancos centrais asiáticos desempenham um papel importante no financiamento do déficit orçamentário dos EUA. Um novo acordo Plaza exigiria um grupo muito maior para negociar - o Grupo dos 20 - sem qualquer mecanismo credível de execução. William Cline, do Instituto de Economia Internacional, argumentou que as economias de mercado emergentes na Ásia podem superar o "dilema do prisioneiro", concordando em permitir que suas moedas se valorizem em relação ao dólar. A extensão da apreciação global seria então muito menor do que se cada país agisse sozinho. Ele também teria a Reserva Federal, o Banco Central Europeu e o Banco do Japão intervir no mercado cambial para diminuir o dólar. 14.

Uma abordagem negociada para resolver os desequilíbrios comerciais pressupõe que os "especialistas" conheçam as taxas de câmbio relevantes do mercado e que os governos possam concordar em impô-los - nenhum dos quais provou ser verdade. Os mercados financeiros são muito mais complexos agora, na década de 1980, e os fluxos de capital privado que os fluxos oficiais do pântano fluem. Qualquer taxa de câmbio que está fundamentalmente desalinhada será eventualmente atacada, e os governos estarão mal equipados para evitar isso. Além disso, o ajuste mais longo está atrasado, quanto maior o custo em termos de desajuste de recursos. China is piling up billions of dollars in foreign exchange reserves to defend its undervalued currency, and wasting valuable capital that could earn a much higher return in the booming private sector or be used to help privatize SOEs or finance the transition to a fully funded pension system. 15.

The argument that intervention is necessary to get all parties to agree to let their currencies appreciate against the dollar in East Asia is questionable. Stephen Green, senior economist at Standard Chartered Bank in Hong Kong, notes that it is unlikely that Asian currencies would stand still while China let the RMB/dollar rate appreciate. 16 Letting all Asian currencies increase at the same rate against the dollar would not put anyone at a competitive disadvantage for inter-regional trade. If a country did not follow suit, it may have a temporary advantage. But as its trade surplus grew, there would be pressure to revalue or suffer inflation as a means to revalue the real exchange rate. Changing one price-the exchange rate-is far less costly than changing the relative price level.

Rather than a new Plaza-Louvre type agreement, an alternative approach to correcting global imbalances is to have monetary authorities agree on common principles and objectives. In a world of pure fiat monies, the principle should be to establish credibility by having central banks constrain themselves to long-run price stability. Many central banks already have adopted inflation targeting and have substantially reduced inflation.

vHans Genberg, executive director for research at the Hong Kong Monetary Authority, has suggested creating a “zone of monetary stability” in East Asia. The key step would be to agree on a credible inflation target regime. To be consistent with capital freedom, central banks would not intervene to peg exchange rates. The information contained in flexible rates would be useful in the conduct of monetary policy, and some monetary authorities may choose to follow the Singaporean model by using the exchange rate as an operating target. (Hong Kong would maintain its currency board and have a hard peg to the dollar.) With regional price stability and financial integration, interest rates would converge and exchange rates would be less volatile. Although a common currency may evolve-either for the region or more likely for a smaller bloc of countries-it is not necessary to realize these benefits. 17.

China needs an independent central bank to stabilize the growth of nominal income and prevent inflation. Relaxing capital controls would take pressure off the RMB/dollar exchange rate while interest rate liberalization would allow a more efficient allocation of capital. A more flexible exchange rate regime would allow the RMB to find its true value in the marketplace. The problem is to get China to adopt liberal economic principles when its political regime is illiberal. For the United States to threaten China with protectionist measures for not adopting liberal principles is counterproductive. Carrying out the threat would make both China and the United States less liberal.

A better tactic is for the United States to follow its own liberal principles and put its house in order before telling others what to do. After all, government profligacy is behind the U. S. fiscal deficits and low saving rate that mirror our persistent current account deficits. We are fortunate America is still a haven for foreign investors, but at some point accumulating further dollar-denominated assets may not be prudent for foreign central banks and private investors. Indeed, the growth of entitlement programs could double the size of the federal government as a percent of GDP-from 20 percent to 40 percent-by 2075. 18 The resulting deficits would be enormous and put significant upward pressure on interest rates, especially if foreigners failed to hold our debt. We do not need an international agreement to limit the size of our government; we can do it ourselves by sticking to the principles of economic liberalism.

China has expressed its long-run desire to make the RMB fully convertible, allow market forces to guide the exchange rate, and to liberalize interest rates. It is in China’s self-interest to do so. Creating an international market-liberal order is a slow process, in which the United States must take a leadership role-not by dictating policy but by example and persuasion. Sound domestic monetary policy, unilateral free trade, and limiting the size and scope of government are essential in this endeavor.

With stronger private property rights and long-run price stability, China would attract and retain capital-including human capital. People would be free to choose in international capital markets and free to trade. A fully convertible RMB, a flexible exchange rate, and a stable domestic price level would enhance both economic and personal freedom.

It makes no sense for a capital-poor country like China to suppress market forces and to accumulate massive foreign exchange reserves, now approaching $1 trillion. According to Greenwood, “If China’s capital markets and its industries were normalized (through deregulation, proper implementation of the rule of law, the encouragement of private markets, and extensive private ownership), then China’s balance of payments would no doubt undergo a major transformation.” 19.

The transition to capital freedom will be smoother, says Greenwood, if the PBC pursues a policy of monetary stability-that is, provides a framework for long-run price stability. To do so, however, requires that the PBC let market demand and supply determine the equilibrium value of the exchange rate and focus primarily on controlling domestic money and credit growth, which means interest rates must also be liberalized. On the other hand, “under a fixed nominal rate framework, external capital controls are much more likely to be maintained and the adjustments to the trade and current account are therefore much less likely to occur.” 20.

If Beijing chooses to keep the RMB/dollar rate undervalued and maintains capital controls, China will continue to experience stop-go monetary policy (see Figure 3) as the domestic money supply responds to the balance of payments and the PBC attempts to sterilize capital inflows.

Beijing needs to be more forthright in describing its financial and monetary system. The State Council announced earlier this year that it wants to achieve an external balance in 2006, but China’s overall trade surplus will match or exceed last year’s historical high of $102 billion. Likewise, the PBC constantly says its goal is to pursue a “sound monetary policy” and “keep the RMB exchange rate basically stable at an adaptive and equilibrium level.” Yet, money and credit continue to grow at rates inconsistent with long-run price stability, and the exchange rate is still pegged at a disequilibrium level.

Source: UBS Asian Economic Monitor , “China by the Numbers (July 2006),” p. 6.

The PBC recommends “better coordination among the various macro policies, transformation of government functions, and institutional innovation.” It also promises that the “foreign exchange system reform will be deepened,” including “facilitating trade and investment, promoting capital account convertibility, expanding channels for capital outflow, fostering the growth of [the] foreign exchange market, [and] further improving the RMB exchange rate regime.” Finally, the PBC has committed to “preserve the continuity and stability of monetary policy, and promote appropriate growth of money and credit, in order to provide a stable monetary and financial environment for economic restructuring.” 21.

Those objectives are laudable, but thus far the rhetoric has failed to match the reality. For example, in its “Monetary Policy Report” for 2003, the PBC stated that it “continued to carry out sound monetary policy,” even though broad money growth (M2) had grown on average by 20 percent that year. The report also said that the PBC would maintain the RMB exchange rate “at an adaptive and equilibrium level.” 22 Yet, the RMB/dollar rate remained fixed at 8.28 from 1994 until July 21, 2005, when it was revalued by 2.1 percent, and has only appreciated slightly since then to about 7.98 RMB/dollar. As a result, China’s foreign exchange reserves have more than doubled since 2003 (see Figure 2). Clearly, financial repression is the hallmark of China’s state-directed financial regime. The pace of reform will depend largely on how much power the CCP is willing to give up in favor of the flexibility and liberalization needed for maintaining robust economic growth and stability.

The Politics of China’s Economic Reform Movement.

Since the start of the reform movement in late 1978, China’s leaders have declared that the CCP’s top priority should be to achieve robust economic growth and improve the standard of living. They chose this path of “peaceful development” to minimize the likelihood of civil and economic unrest that dominated the Mao regime. The failure of central planning and the Soviet development model led to institutional innovation and economic restructuring. China’s accession to the World Trade Organization (WTO) in December 2001 was further evidence of the commitment to liberalize trade and the financial sector.

Progress has been made since 2001, but as the foregoing analysis implies much remains to be done. 23 There has been much discussion of how China should sequence its economic reforms and make the transition from financial repression to capital freedom. It is clear that opening capital markets without reforming state-owned banks and without maintaining monetary stability could lead to substantial capital flight and exacerbate the problem of nonperforming loans. Moreover, there must be an effective legal system to protect newly acquired private property rights.

In a recent interview, Zhou Xiaochuan, the head of the PBC, emphasized that China is committed to create an institutional framework for a more flexible exchange rate regime “based on market demand and supply,” and “gradually realize RMB convertibility … by lifting the restrictions on cross-border capital movements in a selective and step-by-step manner.” In sequencing the financial sector reforms, the first priority is to put the banking system on a sound footing by recapitalizing the large state-owned banks and turning them into joint-stock companies with the participation of foreign strategic investors. Further progress must also be achieved in widening the scope of foreign exchange transactions, including liberalizing the capital account. Zhou recognizes that institutional change cannot occur overnight because “people need some time to learn and adapt to change.” A new “mindset” must be developed. Moreover, he understands that China “cannot wait to start reforming the exchange rate regime until all banking reform measures have been completed.” 24 Reform must move along a broad front.

Financial restructuring is occurring and the new exchange rate regime should allow for more flexibility, but one should not think that the CCP would easily give up its control over the financial sector or allow the exchange rate to be set by market forces. Political change must accompany economic reform if capital freedom is to be fully realized.

Policy Recommendations.

The United States and China need to continue the policy of engagement and recognize that it is more important to focus on the issue of capital freedom than on the narrow question of the proper exchange rate. China should continue to liberalize its exchange rate regime, open its capital markets, allow full convertibility of the RMB, liberalize interest rates, and use domestic monetary policy to achieve long-run price stability. Most important, China needs to privatize its stock markets, its banks, and its firms.

The need for reform of China’s financial sector is widely recognized by Chinese officials and leading economists. Wang Zili, vice director of the Guangzhou Branch of the PBC has emphasized the need for market-based interest rates that reflect the supply and demand for funds. He argues that without liberalization, the interest rate cannot effectively function as a tool of monetary policy: “A prerequisite for interest rates to take effect in macro-regulation is that capital demand and supply should be highly market-oriented.” Thus, “the most important thing for us to do is to form a reasonable interest rate structure.” 25 Recently banks have been given more discretion in setting loan rates, but the PBC still relies on administrative measures to curb excessive money and credit growth.

The PBC’s Monetary Policy Committee has been concerned with the lack of flexibility in the current financial system and made the following recommendations at its third quarterly meeting in 2005:

“The market itself should be allowed to play its role in economic restructuring.” “Market-based interest rate reform policies should be continuously carried out.” “Measures should be taken to further improve the managed floating exchange rate regime and maintain the exchange rate …at an adaptive and equilibrium level.” “Efforts should be made to advance financial reform” and “to enhance the effectiveness of monetary policy transmission.” 26.

Those pro-market policy recommendations are a positive sign and a clear signal that China’s top policymakers are aware of what needs to be done to improve the financial architecture.

If China is to carry out its plans for financial liberalization and have a flexible exchange rate regime, the PBC must have greater independence. Indeed, He Fan and Zhang Bin, economists with the Chinese Academy of Social Sciences, have argued that Beijing “must make implementation of an independent monetary policy its top priority.” 27 With greater independence will come greater transparency and credibility. Until that time, the PBC will be heavily politicized and its statements will lack the credibility necessary to assure global investors that stop-go monetary policy has ended.

In addition to internal pressures for financial reform, China is facing external pressures from the U. S. Congress and the WTO for ending exchange and capital controls. China has promised to allow full participation by foreigners in its banking sector by 2007 and to further open to foreign portfolio investment. However, China is intent on moving at its own pace, especially regarding the transition to a floating exchange rate regime. According to Zhou, the “noises” being made on Capitol Hill (e. g., by Democratic Senator Charles Schumer and Republican Senator Lindsey Graham) for protectionist measures-if China does not significantly revalue the RMB/dollar exchange rate-“will not change the basic conditions and sequence of China’s exchange rate reform.” 28.

Congress can best foster sound U. S.-China relations by not treating China as an inevitable enemy and by taking the opportunity to capitalize on China’s emergence as a market economy, albeit a “socialist market economy.” In particular, U. S. policymakers should.

treat China as a normal rising power, not as a probable adversary; continue to liberalize U. S.-China relations and hold China to its WTO commitments; recognize that advancing economic freedom in China has had positive effects on civil society and personal freedom for the Chinese people. 29.

Conclusão.

President Hu Jintao’s “big idea” is to create a “harmonious and prosperous society” via “peaceful development.” To achieve that goal, however, requires institutional change-namely, a genuine rule of law that protects persons and property. As Wu Jinglian, one of China’s leading reformers, recently stated: “If we don’t establish [a] fair rule of law and don’t have clear protection of property rights, then this market economy will become chaotic and corrupt and inefficient.” 30 It also requires “new thinking,” so that people come to understand and appreciate how nonintervention ( wu wei ), in the sense of limited government, is conducive to a spontaneous market order.

Long before Adam Smith, Lao Tzu argued that when the ruler takes “no action,” “the people of themselves become prosperous.” 31 China’s leaders should turn to “Lao Tzu thought” if they want to realize a “harmonious and prosperous society.” The success of the reform movement-and China’s growing middle class-has come from increased economic freedom, not from top-down planning. Trade liberalization and the growth of the nonstate sector have been the hallmarks of China’s new economy. It is now time to get rid of the last legacy of central planning-state-directed investment and capital/exchange controls-and end financial repression.

Congress would be wise to focus on capital freedom rather than bash China for its large trade surplus with the United States, and blame that imbalance on an undervalued RMB/dollar exchange rate. 32 Protectionist measures to force China to revalue would place a large tax on U. S. consumers and not advance capital freedom. 33 Adherence to the principles of a liberal international order-as opposed to muddling that policy conception by threatening to adopt protectionist measures intended to force international agreements that may distort the international price system-should be the primary object of U. S. policy. 34.

For its part, China needs to follow the Tao of the market if it is to fulfill the promise of “peaceful development.” Ending financial repression by liberalization, privatization, and competition would increase the chances for political reform. The United States and other free countries can help China move in the right direction by adhering to a policy of engagement rather than reverting to destructive protectionism.

We do not want to repeat the mistakes of the 1930s, when the Smoot-Hawley tariff and monetary policy errors effectively ended the liberal international order. 35 Free trade and financial integration are essential for prosperity and peace. As Cordell Hull, U. S. secretary of state from 1933 to 1944, wrote, “Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition with war.” 36.

1 For a discussion of the new Bretton Woods system, see Michael P. Dooley, David Folkerts-Landau, and Peter Garber, “An Essay on the Revived Bretton Woods System,” NBER Working Paper, no. 9971, September 2003.

2 See John Greenwood, “The Real Issues in Asia,” Cato Journal 20, no. 2 (Fall 2000): 141-57.

3 See Anna J. Schwartz, “Do We Need a New Bretton Woods?” Cato Journal 20, no. 1 (Spring/Summer 2000): 21-25.

4 See John B. Taylor, “What Comes after ‘Bretton Woods II’?” Wall Street Journal , August 15, 2005, p. A12.

5 According to a recent study by Dan Ikenson, a trade policy analyst at the Cato Institute, “currency values have had little to do with changes in the trade balance in recent years.” See “Currency Controversy: Surplus of Politics, Deficit of Leadership,” Center for Trade Policy Studies, Free Trade Bulletin , no. 21, May 31, 2006, p. 1.

6 See Alan Greenspan, “The Evolving U. S. Payments Imbalance and Its Impact on Europe and the Rest of the World,” Cato Journal 24, nos. 1-2 (Spring/Summer 2004): 1-11.

7 Wanfeng Zhou, “Dollar Up as U. S. Data Exceed View: China Looks to Diversify Reserves, Igniting U. S. Deficit Concern,” MarketWatch (marketwatch/News), July 25, 2006.

8 On recent reforms, see Fred Hu, “Capital Flows, Overheating, and the Nominal Exchange Rate Regime in China,” Cato Journal 25, no. 2 (Spring/Summer 2005): 357-66, and Stephen Green, “China: Interest Rates, QDII, and Liquidity Challenge,” On the Ground-Asia , Standard Charter Bank, Hong Kong, April 17, 2006. Green calls the April 13, 2006 liberalization of controls on capital outflows for qualified banks, mutual funds, and insurance companies “revolutionary.” The change is an important signal for reform, but the measures still need to be implemented and the sums involved will be small.

9 The UBS capital restrictiveness index is based on a score of 10 (closed capital account) to 1 (open capital account). In calculating this index, UBS takes account of “the number of legal impediments to capital account transactions” and “the size and variability of actual ex post capital flows.” Jonathan Anderson, “How to Think About China (Part 6): Seven Ways China Won’t Change the World,” UBS Asian Economic Perspectives , November 28, 2005, p. 23, n. 3.

10 On the difficulty of preventing “hot capital” from entering China, see Green, “Hot Money: If Only We Knew How Much,” On the Ground-Asia , Standard Chartered Bank, Hong Kong, August 3, 2006.

11 See William R. Cline, “The Case for a New Plaza Agreement,” Policy Briefs in International Economics , no. PB05-4, December 2005, Washington, D. C., Institute for International Economics.

12 For a fuller treatment of the Plaza and Louvre agreements and the mistakes in Japanese monetary policy, see David F. DeRosa, In Defense of Free Capital Markets: The Case against a New International Financial Architecture (Princeton, N. J.: Bloomberg Press, 2001), pp. 8., 36-54, 199.

13 Greenwood, “The Real Issues in Asia,” p. 146.

15 On how reserves could be used to help China make the transition to economic liberalism, see Deepak Lal, “A Proposal to Privatize Chinese Enterprises and End Financial Repression,” Cato Journal 26, no. 2 (Spring/Summer 2006): 275-86.

16 Green, “CNY Appreciation Will Increase China’s Surplus,” On the Ground-Asia , Standard Chartered Bank, Hong Kong, August 1, 2006, p. 2.

17 Hans Genberg, “Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?” Bank of Greece Working Paper, no. 41, May 2006, p. 17. Adopting a single currency for Asia is neither economically nor politically feasible at this time or in the foreseeable future. Economic conditions and political environments are too diverse to warrant a currency union. See Jonathan Anderson, “Still Not a Great Idea,” UBS Asian Focus , May 12, 2006.

18 “A 125-Year Picture of the Federal Government’s Share of the Economy, 1950 to 2075,” CBO Long-Range Fiscal Policy Brief , no. 1, July 3, 2002, Washington, D. C., Congressional Budget Office, ftp. cbo. gov/showdoc. cfm? index=3521&sequence=0.

19 John Greenwood, “The Impact of China’s WTO Accession on Capital Freedom,” Cato Journal 21, no. 1 (Spring/Summer 2001): 93.

21 “An Interview with the PBC Spokesperson on Current Issues,” May 23, 2006, pbc. gov. cn/english//detail. asp? col=6400&ID=684.

22 “China Monetary Policy Report, 2003,” the People’s Bank of China, Executive Summary, March 17, 2004, pbc. gov. cn/english//detail. asp? col=6613&ID=31.

23 For a summary of China’s steps toward financial sector liberalization since December 2001, see Su Ning, deputy governor of the PBC, “Press Ahead with Reform and Opening-Up and Promote the Rapid and Healthy Development of the Financial Sector,” July 10, 2006, pbc. gov. cn/english/detail. asp? col=6500&id=121.

24 “Governor Zhou Xiaochuan Speaks on Issues Related to the Reform of the Exchange Rate Regime,” People’s Bank of China News, September 10, 2005, pp. 1-2, 13. Available at pbc. gov. cn/english//detail. asp? col=6400&id=572.

25 “Reasonable Interest Rate Structure Urged,” China Economic Net , September 22, 2004, en. ce. cn/Business/Macro-economic/200409/20/t20040920_1804840.shtml.

26 “Monetary Policy Committee of the PBC Held the 3rd Quarterly Meeting of 2005,” People’s Bank of China News, September 26, 2005. Available at pbc. gov. cn/english//detail. asp? col=6400&id=593.

27 He Fan and Zhang Bin, “No Haste in Forex Reform,” China Business Weekly , February 9-15, 2004, p. 21.

28 “Governor Zhou Xiaochuan,” p.3.

29 For an expansion of these policy recommendations, see Ted Galen Carpenter and James A. Dorn, “Relations with China,” in Cato Handbook on Policy , 6th ed. (Washington, D. C.: Cato Institute, 2005), chap. 61.

30 Wu Jinglian quoted in “Official Urges Rule of Law in China,” International Herald Tribute , March 6, 2006.

31 See James A. Dorn, “China’s Future: Market Socialism or Market Taoism?” in China in The New Millennium , ed. James A. Dorn (Washington: Cato Institute, 1998), pp. 104-6.

32 Stephen Green argues that China’s large processing trade means an appreciation of the RMB/dollar rate could increase China’s trade surplus or at least not substantially decrease it. See Green, “CNY Appreciation.”

33 See Daniel Griswold, “Who’s Manipulating Whom? China’s Currency and the U. S. Economy,” Trade Briefing Paper, no. 23, July 11, 2006 (Washington, D. C.: Cato Institute, Center for Trade Policy), pp. 10-11.

34 On the shortcomings of the negotiations approach to a liberal international order and the benefits of a principled approach, see Jan Tumlir, “Economic Policy for a Stable World Order,” in Dollars, Deficits, and Trade , ed. James A. Dorn and William A. Niskanen (Boston: Kluwer, 1989), chap. 18. Also see Roland Vaubel, “A Public Choice Approach to International Organization,” Public Choice 51 (1986): 39-57, and Deepak Lal, Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century (Princeton, N. J.: Princeton University Press, 2006).

35 On the Smoot-Hawley tariff and the end of the “liberal international economic order,” see Lal, p. 39.

36 Cordell Hull, The Memoirs of Cordell Hull , vol. 1 (New York: Macmillan, 1948), p. 81.

109 th Congress: Second Session.

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Hearing on U. S.–China Economic Challenges : The impact of U. S.–China trade.

Robert E. Scott, EPI’s director of trade and manufacturing policy research, testified before the U. S.-China Economic and Security Review Commission at a hearing on U. S. - China Economic Challenges, 608 Dirksen Senate Office Building, Washington, D. C., on February 21, 2017. His testimony responded to Panel 1, questions 1–5 and 7.

Question 1. Does U. S. – China trade have an impact on U. S. jobs, wages, and benefits? If so, how has this changed over the last 10 years?

The president has identified reducing inequality as the “defining challenge of our time.” While inequality is a complicated problem, it won’t be solved without raising wages of middle-class Americans, creating more jobs, and reducing unemployment. To do that, we need to increase sales of goods and services made in the United States, which means expanding exports, reducing imports, and shrinking our trade deficit.

Currency manipulation, trade, jobs, and wages.

Currency manipulation, by about 20 countries (mostly in Asia), is the most important cause of our trade deficit. These nations have been exploiting our markets and stealing U. S. jobs for over a decade. Ending currency manipulation would reduce U. S. trade deficits by between $200 billion and $500 billion per year within three years, creating between 2.3 million and 5.8 million U. S. jobs ( Table 1 ). It would also increase U. S. GDP by between $288 billion and $720 billion (between 2.0 percent and 4.9 percent), reduce U. S. budget deficits by between $107 billion and $266 billion (34.4 percent to 86.1 percent) and improve state and local budgets by between $40 billion and $101 billion (2.0 percent to 4.9 percent of total state and local spending) (Scott 2017a).

Impact of ending currency manipulation, on U. S. economy and state spending, 2018*

*The table estimates the effects of ending currency manipulation over three years, modeled as having begun in 2018.

**The low-impact scenario assumes ending currency manipulation would reduce the trade deficit by $200 billion in 2018 relative to the trade deficit in 2018; the high-impact scenario assumes a $500 billion reduction in the trade deficit.

***Percentages shown are relative to baseline forecasts for 2018.

Note: Dollar calculations are in 2005 dollars.

Source: Author's analysis of Bergsten and Gagnon (2018), the American Community Survey (U. S. Census Bureau 2018), U. S. International Trade Commission (2018), Congressional Budget Office (2018a and 2018b), Bivens (2018), Bivens and Edwards (2018), Kondo and Svec (2009, 10), Bureau of Labor Statistics (2018), Bureau of Labor Statistics Employment Projections program (BLS-EP 2018a and 2018b), and Zandi (2018). For a more detailed explanation of data sources and computations, see text and the appendix to Scott (2017a).

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China is by far the largest currency manipulator, and it has increased its holdings of foreign exchange reserves by at least $359 billion per year, on average, between 2006 and 2018 (see Figure A ). Gagnon (2018) has shown that there is nearly a perfect, 1-to-1 correlation between a country’s official purchases of foreign exchange reserves and its current account balances. China has acquired over $4 trillion in foreign exchange reserves and other foreign assets since 2000. Those purchases are strongly correlated with the growth of China’s trade and current account surpluses with the United States, and the world.

Change in China’s total foreign-exchange reserves, 2006–2018.

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The data underlying the figure.

*The $328.9 billion figure is through the end of the third quarter and includes data through the second quarter from the IMF (2018a) and data for the third quarter from Silk (2018).

Source: Author's analysis of International Financial Statistics (IMF 2018a) and Silk (2018)

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Currency manipulators have increased their holding of official foreign assets by nearly $1 trillion per year in recent years. Bergsten and Gagnon (2018) also estimate that the elimination of currency manipulation would result in a 10 percent to 25 percent depreciation in the trade-weighted value of the dollar. The elimination of currency manipulation would result in a somewhat larger appreciation in the Chinese yuan and other manipulated currencies relative to the U. S. dollar.

Currency manipulation can be eliminated by passing new laws (such as H. R. 1276 and S. 1114) and by confronting the perpetrators.1 China is by far the most important currency manipulator. There are approximately 20 other significant currency manipulators, and many others who have been forced to engage in defensive devaluations to maintain their competitiveness with China and other large manipulators (Bergsten and Gagnon 2018, 1). In this regard, it is important to note that official Chinese trade data, which are used by the IMF and other agencies to estimate China’s global trade surplus, substantially and consistently underestimate the overall Chinese trade surplus, as shown by a comparison of Chinese trade statistics with comparable trading partner data on trade with China ( Figure B ).

China’s global goods trade surplus, Chinese vs. trading partner country reports, 2005–2018.

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The data underlying the figure.

*Estimates for 2018 and 2018 are based on incomplete data, with fewer than 152 out of 171 countries reporting.

**The estimates are adjusted for differences in transportation costs, assuming that China pays 10 percent CIF (cost, insurance, and freight) and receives 1/1+.10 in export revenues. See appendix in Scott (2018b) for further details on the methodology.

Source: Author's analysis of United Nations Commodity Trade statistics (UN Comtrade 2018) and IMF (2018a)

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Turning to trade, jobs, and wages, the most important cause of growing inequality remains extremely high levels of unemployment, and low levels of labor force participation. The unemployment rate was 12.7 percent in January if underemployed workers are included (BLS 2017). Sustained low unemployment would deliver much higher levels of wage growth to workers in the bottom and middle of the income distribution. When unemployment falls, wages rise much faster at the bottom and middle of the income distribution than at the top. Thus, reducing unemployment would directly improve income inequality. EPI research has also shown how the growth of trade with China and other low-wage nations has contributed directly to growing income inequality.

EPI research on the costs of China trade and the impacts of trade with low-wage countries.

Business and government officials frequently claim that export growth is delivering great benefits to the economy. For example, the International Trade Administration (ITA 2018) claimed last year that “Americans are selling more U. S. goods and services to the 95 percent of consumers who live outside of our borders. In 2018, U. S. exports hit an all-time record of $2.2 trillion and supported 9.8 million jobs.”

As recently noted in Scott (2018c), trade is a two-way street.

Exports support domestic jobs, but imports displace jobs that would be located in the United States. But when most U. S. officials talk about the benefits they refuse to discuss imports or their effects on employment. Talking about trade and only discussing the growth of exports and their implications for employment is like keeping score in a baseball game and only counting runs scored by the home team—it might make your team sound good, but it won’t tell you if they’ve won the game.

Exports support jobs, but imports destroy them. The best measure of the net impact of trade on the demand for labor, and on overall GDP in the United States, is the change in the U. S. trade balance, measured in dollars.

The administration continues to tout the supposed benefits of rapid export growth (ITA 2018). However, the rate of growth of exports is not the only, or even the most important, determinant of changes in the U. S. trade balance, as shown in charts for U. S. trade with China. For example, Figure C shows that exports to China grew at a 10.3 percent annual rate in 2018, while imports increased only 3.5 percent. However, as shown in Figure D , the value of U. S. exports to China increased only $11.4 billion in 2018, while the value of imports increased $14.8 billion. Thus, the U. S. trade deficit with China increased $3.4 billion last year (in 2018).

Growth in U. S. exports to and imports from China, 2018, 2018, and 2018.

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The data underlying the figure.

Source: Author's analysis of U. S. International Trade Commission (2018)

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Change in value of U. S. exports to, imports from, and trade balance with China, 2018, 2018, and 2018 (in billions of U. S. dollars)

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The data underlying the figure.

Source: Author's analysis of U. S. International Trade Commission (2018)

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The trade deficit increased, despite more rapid export growth, because the total value of imports exceeded that of exports by a factor of 3.6-to-1 in 2018, (U. S.-China imports, exports, and the trade balance for 2000–2018 are shown in Figure E ). Thus, exports would have to grow 360 percent faster than imports just to keep the trade deficit from growing, and they have not. The U. S. trade deficit with China has increased rapidly since that country entered the World Trade Organizations (WTO) in 2001, as shown in Figure E.

The China trade toll: Growing trade deficits, job losses, and wage suppression.

Growing U. S. trade deficits with China between 2001 and 2018 eliminated 2.9 million U. S. jobs. More than three-fourths of the jobs lost (nearly 2.3 million, 77.1 percent) were in the manufacturing sector (Scott 2017b, forthcoming). Similar findings have been obtained by Autor, Dorn, and Hanson (2018) and Pierce and Schott (2018).2.

Workers displaced by trade were pushed out of good jobs with excellent wages, primarily in manufacturing industries, into lower-paying jobs in nontraded industries, or into unemployment. Growing trade deficits with China between 2001 and 2018 resulted in the net loss of at least $13,505 per displaced worker in 2018 alone. For all displaced workers, using education group averages, net wages losses totaled $37 billion (Scott 2018a).

Direct trade and wage losses are just the tip of the iceberg when it comes to the cost of China trade, and globalization more broadly, for American workers. Using standard models to benchmark the cost of globalization for American workers without a college degree, Bivens (2018) estimated that in 2018, trade with low-wage countries lowered wages by 5.5 percent—roughly $1,800 for a full-time, full-year worker without a college degree.

There are approximately 100 million workers in the United States without a college degree. Overall, the growth of imports from low-wage nations has resulted in a total transfer of $180 billion per year from production to nonproduction workers, directly contributing to the observed rise in inequality. The growth of trade with low-wage countries explains roughly 90 percent of the rise in college wage premium since 1995. Between 1995 and 2018, China alone was responsible for over half (51.6 percent) of the growth in the college/noncollege wage gap. (Bivens 2018)

Question 2. What secondary factors, such as indirect employment effects, or the impact of manufacturing job losses on the business services sector, have affected overall employment in the U. S. economy as a result of the trade imbalance?

The U. S. economy is entering the seventh year of the great recession. Nearly 8 million jobs are needed to absorb the excess workers in the economy and return to unemployment levels that prevailed before the start of the recession (EPI 2018). The U. S. economy was operating 4.5 percent below potential output in 2018 (an output gap of $797.5 billion) (CBO 2017).

The elimination of currency manipulation would directly stimulate the creation of up to 2.3 million direct U. S. jobs ( Table 2 , high-impact scenario). An additional 1.7 million jobs would be created in indirectly supported industries, including jobs in supplier industries (such as steel, glass, and tires used as inputs to the auto industry), and service industries (such as accounting, scientific, and technical and managerial services). Because the economy has unused resources, the creation of up to 4 million (direct plus indirect jobs) by the elimination of currency manipulation will also result in the creation of additional respending jobs in the economy, as those initial workers spend the wages earned on goods and services. Since wages are high in manufacturing (which makes most traded goods), reducing trade deficits will have a large “multiplier” effect on employment. We estimate that the multiplier for such spending is 0.44. Thus, an additional 1.8 million jobs multiplier jobs would be created by eliminating currency manipulation in the high-impact scenario, as shown in Table 2.

Number of U. S. jobs created by ending currency manipulation, 2018*

*The table estimates the effects of ending currency manipulation over three years, modeled as having begun in 2018.

**The low-impact scenario assumes ending currency manipulation would reduce the trade deficit by $200 billion in 2018 relative to the trade deficit in 2018; the high-impact scenario assumes a $500 billion reduction in the trade deficit.

Source: Author's analysis of the American Community Survey (U. S. Census Bureau 2018), U. S. International Trade Commission (2018), Congressional Budget Office (2018a and 2018b), Bivens (2018), Bivens and Edwards (2018), Kondo and Svec (2009, 10), Bureau of Labor Statistics (2018d), Bureau of Labor Statistics Employment Projections program (BLS-EP 2018a and 2018b), and Zandi (2018). For a more detailed explanation of data sources and computations, see text and the appendix to Scott (2017a).

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Jobs supported by eliminating currency manipulation would be concentrated primarily in manufacturing and agricultural states in the Midwest including Wisconsin, Indiana, Iowa, Minnesota, Michigan, Ohio, South Dakota, Kansas, Nebraska, and also Idaho in the West. Growing trade deficits have devastated manufacturing production, which has had a ripple effect on state and local governments throughout these “rustbelt” regions of the country.

Question 3. How would our economic relationship with China need to change for it to produce more U. S. jobs and a better balance of trade?

China has built an export based economy on a foundation of illegal financial, trade, and industrial policies. These include China’s currency manipulation; its many trade-distorting practices including extensive subsidies, illegal barriers to imports, restrictions on critical trade in critical materials (such as taxes and quotas on exports of rare earth minerals), and dumping; suppression of wages and labor rights; and a race to the bottom in environmental, health, and product safety standards that have threatened consumers in the U. S., polluted our air and oceans, and increased global warming.

At the same time, China has suppressed wages and neglected the development of its own domestic consumer markets. From a macroeconomic perspective, China has developed bloated manufacturing and trade goods sectors and suppressed domestic consumption. As a result the structure of China’s economy is distorted, imbalanced, and unsustainable.

China needs to redevelop its economy by reducing its reliance on export-led growth and taking steps to increase domestic consumption. These could include measures to raise domestic wages by raising minimum wages and by recognizing the rights of workers to independently organize and bargain collectively (e. g., form independent trade unions). China can also boost domestic demand by increasing investment in its social safety net and through expanded investments in domestic infrastructure.

Question 4. As China evolves from an economy that makes copies of things to an economy that also invents things, what does the U. S. need to do to ensure that our workers are prepared to compete?

There are a number of policies the United States can and should undertake to redevelopment its economy. All will contribute to rebuilding U. S. manufacturing. For example, underinvestment in infrastructure reduces the efficiency of the economy and the competitiveness of U. S. manufacturing. The United States needs $3.6 trillion in infrastructure investment by 2020 (ASCE 2018). Rebuilding U. S. infrastructure will create huge demands for domestic manufactured products such as steel, concrete, construction equipment, controls and instruments. It will also help rebuild overall demand in the domestic economy.

The remainder of the response to question four pulls directly from a previous EPI research paper (Scott, Jorgenson, and Hall 2018).

Enacting policies to more effectively stimulate demand, including ending currency manipulation, rebuilding infrastructure, investing in clean and renewable technology industries, and eliminating unfair trade policies (such as dumping, subsidies, and other unfair trade barriers) are the most important steps needed to rebuild U. S. manufacturing.

New trade policies to respond to a dynamic and increasingly hostile international environment would move toward a restructuring of the world trading system so that it supports fair, balanced, and sustainable trade. And the massive public investments needed to rebuild U. S. infrastructure and develop new green and clean energy technologies will create domestic and foreign demand for new products that can help rebuild U. S. manufacturing, while increasing the competitiveness of the U. S. economy as a whole. Finally, reforms of health care and tax systems are also needed to increase competitiveness and rebalance public spending and revenues in the United States.

While policies that address the demand side of the equation are critical, supply-side assistance is also crucial; U. S. manufacturing suffers from reduced capacity, in both absolute terms and relative to our trading partners. The United States and its domestic manufacturers are operating in an environment where many other countries, including Germany, Japan, China, and Korea, operate comprehensive, supply-side programs to support their traded goods industries. The United States needs to create a world-class environment to support domestic manufacturing (Ezell and Atkinson 2018 and 2018). This should include greatly enhanced investments in technology development, and manufacturing “extension programs” such as the Manufacturing Extension Partnership, a program of the National Institute of Standards and Technology (NIST) that is vastly underfunded when compared with agriculture capacity-building programs of the USDA and with manufacturing capacity-building programs of other countries such as Canada, Germany, and Japan.

The United States also needs an intermediary institution to provide working and investment capital to small and medium-sized manufacturers, which often lack access to U. S. bank and capital markets that give preference to large multinational companies for bank loans and long-term corporate bonds. This “Mannie Mae” would be modeled on the federal housing enterprises (i. e., Fannie Mae, Freddie Mac, and Ginnie Mae) that channel capital into the nation’s housing finance markets.

In addition, federal and state governments should work with schools, unions, and manufacturers to develop improved school-to-work training programs for noncollege graduates, modeled on German and Danish labor force policies.

Finally, Japan has a Ministry of Economy, Trade, and Industry (METI), a powerful agency that works to ensure that foreign trade policy complements efforts to strengthen domestic manufacturing interests. China through its five-year plans also provides critical strategic support to manufacturing efforts. The U. S. government needs to expand its capacity to develop and implement national trade and competitiveness strategies to respond to, and compete with, Japan’s METI and China’s five-year plans.

Lessons on building strong support systems from the United States and other countries.

The major elements of a more effective national trade and industrial policy were outlined in the previous section. A few examples will illustrate the scale of resources and commitments required to raise manufacturing support in the United States to a level on par with other countries.

In the debates about the future of manufacturing, comparisons are frequently drawn between the decline of employment in agriculture and that in manufacturing. However, agriculture has continued to be a major U. S. exporter, and its contribution to the economy has been relatively constant in recent years despite the sharp decline in employment. Agricultural output has continued to grow (in real terms) despite falling employment.

One of the primary reasons for rising output in agriculture is the steady growth of productivity (output per acre). Among the foremost reasons for the large and steady rise in agricultural productivity has been the key role played by the federal government in supporting research and its dissemination and diffusion. Resources dedicated to this task include the U. S. Department of Agriculture and its Agricultural Research Service, the system of land-grant colleges that support a vast base of primary research into agricultural sciences, economics and technology diffusion, and the USDA’s farm extension service, which has disseminated the latest research findings to farmers at the county and farm level.

There is simply no counterpart in manufacturing to the USDA/land-grant college system of agricultural research, development, innovation, and diffusion of new technologies. The entity that comes closest to performing a similar role in manufacturing may be the relatively obscure National Institute of Standards and Technology (NIST). The president’s budget requested $857 million for NIST in fiscal 2018 (NIST 2018).

In comparison, the USDA’s overall 2018 budget request, including mandatory crop subsidy programs and all other research programs, was $155 billion (USDA 2018). Some 72 percent of USDA expenditures are for nutrition assistance (the Women, Infants and Children program), which only indirectly benefits agriculture. Considering only non–nutrition assistance programs, which include farm and commodity programs, conservation and forestry, rural development, research, and other programs, the USDA’s fiscal 2018 request is still $43.4 billion, more than 50 times total spending on NIST programs. However, manufacturing generated 10 times as much output as did agriculture in 2018: $1,731.5 billion of value added in manufacturing versus $173.5 billion in agriculture (Bureau of Economic Analysis 2018). Thus, per dollar of economic output generated, the USDA spends more than 500 times as much to support agriculture and related activities as NIST spends on manufacturing research and related activities.

One of the most visible (and controversial) elements of NIST is the Hollings Manufacturing Extension Partnership (MEP), which was designated to receive $128 million in fiscal 2018 (NIST 2018). Comparative research by Ezell and Atkinson (2018) has shown that U. S. expenditures for the MEP program represent only 0.0014 percent of U. S. GDP. As a share of GDP, Canada spends more than seven times as much as the United States on manufacturing extension and services programs, and Japan spends nearly 23 times more than the United States.

If U. S. spending on the MEP program were to rise to the Japanese level, it would require a budget allocation of approximately $5 billion per year, not large in the context of the USDA budget, or of overall government spending, but a huge, roughly 40-fold increase of the program.

Germany’s Fraunhofer-Gesellschaft, the country’s largest organization for applied research, serves as a compelling model of what the MEP could become. It supports more than 80 research units and 60 Fraunhofer Institutes and in 2018 had a staff of 20,000, more than half of whom are scientists and engineers. It had an annual budget of €1.8 billion euros ($2.4 billion). More than 70 percent of Fraunhofer’s contract research is from contracts with industry and from publicly funded research projects. Almost 30 percent of its funding is provided by the German federal and state (lander) governments. (Fraunhofer 2018)

The U. S. GDP is approximately 4.2 times larger than Germany’s (IMF 2018b). If the U. S. MEP program were operated on the scale of the Fraunhofer-Gesellschaft, it would require total funding of $10.1 billion, of which $3.0 billion would be required from federal and state contributions. Thus, both the German and Japanese examples suggest U. S. spending on the MEP program should be expanded 20- to 40-fold. Expanding to a program of this scale would require time and resources to ensure that the needed capacities were developed and the resources well invested.

But expanding the MEP program would by no means be sufficient to restore U. S. manufacturing competitiveness. The United States would also need to greatly expand its national R&D infrastructure, both through funding programs within federal agencies such as the National Science Foundation, the Department of Energy, the Environmental Protection Agency, and the National Institutes of Health, and by creating a national system of research universities dedicated to developing manufacturing technology and training manufacturing engineers. This training system would serve as the manufacturing equivalent of the USDA’s system of land-grant colleges, but on a larger scale.

International comparisons also provide good models for labor/management relations, for financing small and medium-sized manufacturing firms and other exporting firms, and for training noncollege-educated workers. German manufacturers practice “stakeholder capitalism” in which boards of directors include an equal number of repre­sentatives of managers and workers (Meyerson 2018). Germany also has an entire sector of banks devoted to financing small and medium-sized firms, which reduces such firms’ need to rely on private capital markets and lessens the demand for maintaining short-term profits. Additionally, Germany has a highly developed school-to-work job-training system for noncollege-educated work­ers, which is much more effective than U. S. job training and displaced-labor-assistance programs. As a result, over the past decade Germany has maintained a large and growing trade surplus even relative to low-wage countries outside the eurozone, despite having some of the highest manufacturing compensation rates in the world (BLS 2018). Furthermore, it has maintained its com­petitiveness in world export markets, and its exports are dominated by autos and other high-value, durable manu­factured goods.

There are externalities that lead U. S. private firms to underinvest in training, R&D, and other activities that would be supported by supply-side policies previously suggested. There are also market imperfections in capital markets that need to be addressed with new public institutions, as suggested above. These market imperfections provide an economic justification for investing public resources in activities that would enhance U. S. manufacturing capacity.

While it is beyond the scope of this [statement] to detail a comprehensive program to develop a world-class environment to support U. S. manufacturing, it is clear that such programs are necessary and would greatly aid expansion of manufacturing and other traded industries, creating millions of additional jobs. Rebuilding manufacturing through rebalancing trade can help restructure the U. S. economy, close the output gap, and help return the U. S. economy to full employment. In the absence of such programs, the United States appears destined to suffer through a “lost decade” or more of excessive unemployment and output far below potential (Fieldhouse and Bivens 2018).

On the other hand, implementing more effective trade and industrial policies, coupled with massive investments in infrastructure, clean technologies, and renewable energy, could reduce or eliminate the U. S. trade deficit altogether. This would support millions of additional good jobs, add hundreds of billions of dollars to U. S. GDP, and reduce unemployment and federal budget deficits while greatly improving state and local finances. These policies would be win-win for the United States, its workers, U. S. communities, and manufacturing and other high-wage domestic industries such as construction and utilities.

Question 5. What is the U. S. doing to address worker readiness and education?

It is important to note that at this stage of the recovery, there is very strong evidence suggesting that a shortage of training or skills mismatches are not responsible for current high levels of unemployment. As of December 2018, there were still more than 2.5 unemployed workers for every available job opening in the country. There were between 1.3 and 8.2 times as many unemployed workers as job openings in every industry. In no industry does the number of job openings even come close to the number of people looking for work (Shierholz 2017).

There is some evidence that employer paid training in the United States has increased slightly in 2018. The American Society for Training and Development (ASTD) estimated that organizations spent $164.2 billion on training in 2018, up from $156 billion in 2018 (Cook 2017). An earlier study for the Employment and Training Administration of the U. S. Department of Labor and the ASTD found that in 2006 businesses spent $46–$54 billion per year on training. However, only one-fifth to one-third of employees received training from their employer, and more educated workers were more likely to receive training (Nightingale and Mikelson 2018) . Thus, most workers did not receive job training from their employer.

Question 7. Why negotiate a Bilateral Investment Treaty (BIT) with China? Why seek an agreement that ensures U. S. companies are better able to move jobs to China?

This question illustrates the tension between policies that are good for U. S. companies, and those that benefit the United States as a location for jobs and production. The data on the economic impacts of foreign investment and “insourcing” are quite clear. Between 1990 and 2006, foreign multinational companies (MNCs) operating in the U. S. were responsible for the net loss of 4 million jobs in domestic firms taken over by those companies, due to layoffs, firms that spun off (and including net jobs created in startups owned by those firms) (Scott 2007).

As Scott (2007) notes, one of the major motivations for negotiating a BIT is to encourage foreign multinationals to invest in the United States. Public officials often take credit for the local jobs created or retained by such investments. Millions of dollars in public money are often offered as incentives to attract such investments, in what often becomes a race-to-the bottom among cities and states that engage in “smokestack chasing.” Less attention has been given to what happens after the initial investment takes place. Sometimes foreign MNCs make an initial job-creating investment and then change their mind. Swedish MNC Electrolux, for example, manufactured refrigerators for years in Greenville, Michigan, but recently closed the plant and moved most of its 2,700 jobs to Mexico (Grand Rapids Press 2008).

Insourcing is often deliberately designed to remove jobs from American industries. Foreign multinationals buy U. S. firms, hollow them out, and then outsource production to their home countries. For example, a few years ago the Indian firm GHLC acquired Dan River, a U. S. textile company. News reports confirmed that “Indian firms are attracted in particular to companies whose brands enjoy considerable popularity in their home markets as those brands can be manufactured more cheaply in their Indian plants” (Business Wire 2007). A similar fate likely awaits Smithfield foods, which was recently purchased by China’s Shanghui (IndustryWeek 2018).

Stepping back from the plant-level view of insourcing, Figure F provides data on total trade by U. S. and foreign MNCs for 1997 to 2018. Overall, these firms have been responsible for a growing share of the U. S. trade deficit. Though not shown in the figure, foreign MNCs alone were responsible for nearly half (44.2 percent) of the U. S. goods trade deficit in 2018. It is, in general, true that foreign companies invest in the United States to gain access to this market.

Trade deficit of MNCs* operating in the U. S. as a share of the total U. S. goods trade deficit, 1997–2018.

The data below can be saved or copied directly into Excel.

The data underlying the figure.

Source: Author's analysis of Bureau of Economic Analysis Direct Investment and Multinational Companies interactive tables and National Income and Product Account interactive tables (BEA 2018a and 2018b)

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In the 1990s and before, it was true that U. S. MNCs also invested abroad to gain market access. U. S. MNCs used to have a goods trade surplus until 2000. Since then, these firms have developed a large and growing trade deficit. The dominant mode of production for U. S. MNCs is now oriented largely towards outsourcing production of goods destined for sale in the United States. U. S. trade deficits with China and other countries have displaced millions of jobs in the United States. Overall, U. S. and foreign MNCs are responsible for nearly three-fourths (71.1 percent) of the U. S. goods trade deficit in 2018, and shown in Figure F, and hence for most of the jobs displaced by trade in the United States. Thus, the globalization of finance, and the rapid growth of MNCs, have hurt the U. S. economy through the contributions of these firms to growing U. S. trade deficits and trade-related jobs losses. What is good for Wall Street is definitely not good for Main Street in America.

The United States would be better served by using the scarce resources devoted to negotiating new international trade agreements and investment treaties to improve the enforcement of U. S. fair trade laws. The risks associated with a new BIT, especially with China, greatly outweigh any potential benefits.

— The author thanks Ross Eisenbrey for comments and William Kimball for research assistance.

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1. H. R. 1276 and S.1114 would allow the Commerce Department to treat currency manipulation as a subsidy in Countervailing Duty trade cases (OpenCongress 2018b and 2018a).

2. Autor, Dorn, and Hanson (2018) examine the period from 1990 to 2007. Pierce and Schott (2018) examine data for March 2001 to March 2007.

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China’s Financial System and Monetary Policies: The Impact on U. S. Exchange Rates, Capital Markets, and Interest Rates.

109 th Congress: Second Session.

Mr. Chairman and Members of the Commission, thank you for this opportunity to discuss China’s financial system and monetary policy, their impact on the United States, and the relationship between China’s financial system and domestic Chinese politics. These are complex issues and I will only touch the surface today, but I hope to address the core ideas and offer some policy recommendations consistent with a liberal international economic order-which I believe is essential for U. S. economic security and China’s peaceful development.

Major Questions.

Let me begin by briefly addressing the four questions you asked members of this panel-“The Macroeconomic Impact of Chinese Financial Policies on the United States” - to consider.

1. Is the present equilibrium sustainable? That is, are we in a New Bretton Woods Era? Or, do we need a new Plaza-Louvre Agreement to manage adjustment?

The “present equilibrium” is an equilibrium only in the sense of a status quo. In an economic sense, it is a disequilibrium due to financial repression in China and government profligacy in the United States. The status quo is sustainable only to the extent that China and the rest of the world are willing to accumulate dollar assets to finance our twin deficits.

We may be in a “New Bretton Woods Era” in the sense that China and other Asian countries peg their currencies to the dollar as a key reserve currency, but the analogy to the original Bretton Woods system is misplaced. There is no golden anchor in the present system of fiat monies, and private capital flows and floating exchange rates have fundamentally changed the nature of the global financial architecture. 1 The International Monetary Fund (IMF) has been searching for a new identity since the collapse of the Bretton Woods system of “fixed but adjustable” exchange rates in the fall of 1971 when the United States closed the gold window and suspended convertibility. The Mexican peso crisis in 1994-95 and the Asian currency crisis in 1997-98 resulted in large part because of excessive domestic monetary growth and pegged exchange rate systems in the crisis countries. 2 Since that time many emerging market countries have adopted inflation targeting and floating exchange rates. Trying to form a new IMF-led system of managed exchange rates with central bank intervention would be a step backward rather than forward. 3.

We do not need a new Plaza-Louvre Agreement to manage global imbalances. Just as the negotiations approach to trade liberalization gets bogged down in the global bureaucracy, government-led coordination of exchange rates is apt to fare no better. There are many more players today than in the 1980s, when China was still in the minor league. A surer route to successful adjustment is for each country to focus on monetary stability, reduce the size and scope of government, and expand markets. International agreements are difficult to enforce, and no one really knows what the correct array of exchange rates should be. Millions of decentralized traders in the foreign exchange markets are much better at discovering relative prices than government officials who are prone to protect special interest groups. The United States, for example, wants the yuan (also known as the renminbi [RMB]) to float-but only in one direction.

2. What are the chances for an orderly vs. disorderly adjustment? What are the implications of each for U. S. capital markets?

If China continues to open its capital markets and to make its exchange rate regime more flexible, it will eventually be able to use monetary policy to achieve long-run price stability. 4 At present, the People’s Bank of China (PBC) must buy up dollars (supply RMB) to peg the RMB to the dollar and then withdraw excess liquidity by selling securities primarily to state-owned banks. This “sterilization” process puts upward pressure on interest rates, which if allowed to increase would attract additional capital inflows. The PBC thus has an incentive under the current system to control interest rates and rely on administrative means to manage money and credit growth. But the longer this system persists, the larger the PBC’s foreign exchange reserves become and the more pressure there is for an appreciation of the RMB/dollar rate.

The July 21, 2005 revaluation and a number of changes in the institutional setting to establish new mechanisms for market makers and hedging operations are steps in the right direction. Financial liberalization will take time, and China will move at her own pace. The United States should be patient and realistic. Most of the costs of China’s undervalued currency are borne by the Chinese people. Placing prohibitively high tariffs on Chinese goods until the RMB/dollar rate is allowed to appreciate substantially is not a realistic option. It would unjustly tax American consumers, not correct the U. S. overall current account deficit (or even our bilateral trade deficit with China), and slow liberalization. 5.

Adjustment requires that China not only allow greater flexibility in the exchange rate but also allow the Chinese people to freely convert the RMB into whatever currencies or assets they choose. Capital freedom is an important human right and would help undermine the Chinese Communist Party’s monopoly on power by strengthening private property rights. A more liberal international economic order is a more flexible one based on market-determined prices, sound money, and the rule of law. We should help China move in that direction not by threats but by example. The U. S. government should begin by reducing its excessive spending and removing onerous taxes on saving and investment.

An orderly adjustment based on market-liberal principles would help ease the costs to the global economy and to the United States in particular. Keeping our markets open sends an important signal to the rest of the world, and getting our fiscal house in order-by trimming the size of government and by real tax reform-would show that we mean business. Reverting to protectionism, on the other hand, would have a negative impact on the global financial system, and adjustment would be slower and more costly. 6.

3. What is the likelihood that China will seek to diversify its foreign currency holdings? How would they do so? What would be the consequences?

The composition of China’s foreign exchange reserves is a state secret, but a reasonable estimate is that about 80 percent of China’s $941 billion of reserves are held in dollar-denominated assets, especially U. S. government bonds. Any sizeable one-off revaluation of the RMB/dollar rate would impose heavy losses on China. Other Asian central banks would also suffer losses on their dollar reserves as the trade-weighted value of the dollar fell. No one wants to be the last to diversify out of dollars. If the euro becomes more desirable as a reserve currency, the PBC and other Asian central banks can be expected to hold more euros and fewer dollars in their portfolios.

The future of the dollar will be precarious if the United States continues to run large budget deficits and fails to address its huge unfunded liabilities. Foreign central banks would not wait for doomsday; they would begin to diversify now. Markets are ruled by expectations, so it is crucial for the United States to begin taking positive steps to get its own house in order-and to reaffirm its commitment to economic liberalism.

For its part, China can help restore global balances by moving toward a more flexible exchange rate regime and liberalizing capital outflows so that there will be less pressure by the PBC to accumulate foreign reserves. Delaying adjustment means faster accumulation of reserves, greater risk of capital losses by holding dollar assets, and a stronger incentive to diversify. Indeed, in a recent report, China’s National Bureau of Statistics recommended that the PBC should increase the pace of diversification to reduce future capital loses from overexposure to the dollar. 7.

If China does begin to increase the pace of diversification and the United States does not effectively resolve its long-term fiscal imbalance, the result would be higher U. S. interest rates, crowding out of private investment, and a decline in stock prices.

4. What are the likely consequences of a failure to address global current account imbalances?

The most serious consequences of not addressing the global current account imbalances would be the persistence of market socialism in China and creeping socialism in the United States. The failure to address global imbalances means the failure to accept economic liberalism. China needs to move toward a market-liberal order, which means it needs a rule of law that protects persons and property, and the United States needs to resist protectionism and reduce the size and scope of government.

While it is useful to consider the macroeconomic impact of Chinese financial policies on the United States, it is well to remember that China is still a relatively small economy (the U. S. federal budget alone is larger than China’s GDP). What matters most for the U. S. economy is to pursue sound monetary and fiscal policies at home. If we follow such policies and maintain an open trading system, U. S. prosperity will continue.

China’s Repressed Financial System.

There is no doubt that China’s financial system is repressed: capital controls limit freedom of choice, the exchange rate is undervalued and distorted by massive government intervention, interest rates are heavily regulated, the private sector is discriminated against in favor of state-owned enterprises (SOEs), banks and security firms are mostly government owned and controlled, and corruption is rampant.

China has the most restricted capital markets in Asia. Portfolio investments are heavily controlled, as are most other capital account transactions. Changes are occurring, such as more lenient treatment of qualified foreign and domestic institutional investors, but much remains to be done. 8 A ranking of Asian countries based on the UBS capital restrictiveness index indicates that China has a long way to go before it reaches the degree of capital freedom enjoyed by top-rated Hong Kong (Figure 1). 9.

Source: Anderson, “How to Think About China (Part 6),” November 28, 2005, p. 23, based on CEIC, IMF, and UBS estimates.

By suppressing two key macroeconomic prices-the interest rate and the exchange rate-and by failing to privatize financial markets and allow capital freedom, China’s leaders have given up flexibility and efficiency to ensure that the Chinese Communist Party (CCP) retains its grip on power. The goal is to build a “socialist market economy,” not a genuine free market based on private property rights and the rule of law. Restricting economic freedom, including the free flow of information essential to efficient capital markets, inevitably retards both personal and political freedom.

China’s financial repression means the PBC cannot have an independent monetary policy aimed at achieving long-run price stability. Rather, the PBC has a schizophrenic policy aimed at managing both the exchange rate and the price level. Such a policy is untenable in the long run if China wants to become a world-class financial center with capital freedom. Moreover, as the trade account grows, it becomes more difficult to control capital inflows and to “sterilize” them by selling central bank bills to prevent new base money (created when the PBC buys dollars and other foreign currencies) from creating excessive money and credit growth. 10.

The CCP faces a dilemma: it can either maintain the status quo by suppressing capital freedom to retain its grip on power or it can gradually normalize China’s capital markets and risk losing power. The best way to help China move toward market liberalism, and away from the status quo, is to stick to a policy of engagement rather than succumb to destructive protectionism.

The Case for Economic Liberalism.

Engagement does not mean dictating what the RMB/dollar exchange rate should be or calling for a new Plaza-Louvre type agreement to correct global imbalances. When the Group of Five Industrialized Nations, the G-5 (United States, United Kingdom, Japan, Germany, and France) met in 1985 to agree on collective action to lower the foreign exchange value of the dollar, China was not a factor. The PBC’s foreign exchange reserves were only $12.7 billion (see Figure 2), and China’s overall current account was roughly in balance. Intervention in the foreign exchange markets and various changes in fiscal policies in the G-5 did help to bring the dollar’s value down, but the U. S. current account deficit still reached a peak of 3.4 percent of GDP in 1987, at which time the G-6 met in Paris to reverse course and intervene to stem the dollar’s slide. 11.

Currency intervention is often sterilized and has no permanent effect on the real exchange rate. The dollar had already begun to fall against the major currencies before the Plaza Accord. The 1985 agreement accelerated that process. The Bank of Japan (BOJ), however, engaged in sterilization to offset the dollar sales (yen withdrawals), limiting the impact on the yen/dollar rate. After the 1987 accord, the BOJ bought dollars and allowed the monetary base to grow rapidly, creating the bubble economy. The bubble burst in 1990 after the BOJ sharply cut money growth in mid-1989. The lesson is that exchange rate intervention can wreak monetary havoc. The countries that suffered the most from the Asian financial crisis were those that had mistaken monetary policy. 12 As John Greenwood, chief economist for Invesco Asia, Ltd., observed, “The general lesson is that to control money and credit growth within reasonable ranges that are compatible with low inflation in the longer run, the external value of the currency must be free to adjust-especially upwards.” 13.

Today, the U. S. current account deficit has risen to more than 6 percent of GDP, China is the world’s third largest trading nation, and Asian central banks play an important role in financing the U. S. budget deficit. A new Plaza accord would require a much larger group to negotiate-the Group of 20-without any credible enforcement mechanism. William Cline of the Institute for International Economics has argued that emerging market economies in Asia can overcome the “prisoner’s dilemma” by jointly agreeing to allow their currencies to appreciate against the dollar. The extent of overall appreciation would then be much smaller than if each country acted alone. He would also have the Federal Reserve, European Central Bank, and Bank of Japan intervene in the foreign exchange market to push the dollar lower. 14.

A negotiated approach to resolving trade imbalances presumes that “experts” know the relevant market-clearing exchange rates and that governments can agree to enforce them-neither of which has proven to be true. Financial markets are much more complex now then in the 1980s, and private capital flows swamp official flows. Any exchange rate that is fundamentally misaligned will eventually be attacked, and governments will be ill equipped to prevent it. Moreover, the longer adjustment is delayed, the higher the cost in terms of resource misallocation. China is piling up billions of dollars in foreign exchange reserves to defend its undervalued currency, and wasting valuable capital that could earn a much higher return in the booming private sector or be used to help privatize SOEs or finance the transition to a fully funded pension system. 15.

The argument that intervention is necessary to get all parties to agree to let their currencies appreciate against the dollar in East Asia is questionable. Stephen Green, senior economist at Standard Chartered Bank in Hong Kong, notes that it is unlikely that Asian currencies would stand still while China let the RMB/dollar rate appreciate. 16 Letting all Asian currencies increase at the same rate against the dollar would not put anyone at a competitive disadvantage for inter-regional trade. If a country did not follow suit, it may have a temporary advantage. But as its trade surplus grew, there would be pressure to revalue or suffer inflation as a means to revalue the real exchange rate. Changing one price-the exchange rate-is far less costly than changing the relative price level.

Rather than a new Plaza-Louvre type agreement, an alternative approach to correcting global imbalances is to have monetary authorities agree on common principles and objectives. In a world of pure fiat monies, the principle should be to establish credibility by having central banks constrain themselves to long-run price stability. Many central banks already have adopted inflation targeting and have substantially reduced inflation.

vHans Genberg, executive director for research at the Hong Kong Monetary Authority, has suggested creating a “zone of monetary stability” in East Asia. The key step would be to agree on a credible inflation target regime. To be consistent with capital freedom, central banks would not intervene to peg exchange rates. The information contained in flexible rates would be useful in the conduct of monetary policy, and some monetary authorities may choose to follow the Singaporean model by using the exchange rate as an operating target. (Hong Kong would maintain its currency board and have a hard peg to the dollar.) With regional price stability and financial integration, interest rates would converge and exchange rates would be less volatile. Although a common currency may evolve-either for the region or more likely for a smaller bloc of countries-it is not necessary to realize these benefits. 17.

China needs an independent central bank to stabilize the growth of nominal income and prevent inflation. Relaxing capital controls would take pressure off the RMB/dollar exchange rate while interest rate liberalization would allow a more efficient allocation of capital. A more flexible exchange rate regime would allow the RMB to find its true value in the marketplace. The problem is to get China to adopt liberal economic principles when its political regime is illiberal. For the United States to threaten China with protectionist measures for not adopting liberal principles is counterproductive. Carrying out the threat would make both China and the United States less liberal.

A better tactic is for the United States to follow its own liberal principles and put its house in order before telling others what to do. After all, government profligacy is behind the U. S. fiscal deficits and low saving rate that mirror our persistent current account deficits. We are fortunate America is still a haven for foreign investors, but at some point accumulating further dollar-denominated assets may not be prudent for foreign central banks and private investors. Indeed, the growth of entitlement programs could double the size of the federal government as a percent of GDP-from 20 percent to 40 percent-by 2075. 18 The resulting deficits would be enormous and put significant upward pressure on interest rates, especially if foreigners failed to hold our debt. We do not need an international agreement to limit the size of our government; we can do it ourselves by sticking to the principles of economic liberalism.

China has expressed its long-run desire to make the RMB fully convertible, allow market forces to guide the exchange rate, and to liberalize interest rates. It is in China’s self-interest to do so. Creating an international market-liberal order is a slow process, in which the United States must take a leadership role-not by dictating policy but by example and persuasion. Sound domestic monetary policy, unilateral free trade, and limiting the size and scope of government are essential in this endeavor.

With stronger private property rights and long-run price stability, China would attract and retain capital-including human capital. People would be free to choose in international capital markets and free to trade. A fully convertible RMB, a flexible exchange rate, and a stable domestic price level would enhance both economic and personal freedom.

It makes no sense for a capital-poor country like China to suppress market forces and to accumulate massive foreign exchange reserves, now approaching $1 trillion. According to Greenwood, “If China’s capital markets and its industries were normalized (through deregulation, proper implementation of the rule of law, the encouragement of private markets, and extensive private ownership), then China’s balance of payments would no doubt undergo a major transformation.” 19.

The transition to capital freedom will be smoother, says Greenwood, if the PBC pursues a policy of monetary stability-that is, provides a framework for long-run price stability. To do so, however, requires that the PBC let market demand and supply determine the equilibrium value of the exchange rate and focus primarily on controlling domestic money and credit growth, which means interest rates must also be liberalized. On the other hand, “under a fixed nominal rate framework, external capital controls are much more likely to be maintained and the adjustments to the trade and current account are therefore much less likely to occur.” 20.

If Beijing chooses to keep the RMB/dollar rate undervalued and maintains capital controls, China will continue to experience stop-go monetary policy (see Figure 3) as the domestic money supply responds to the balance of payments and the PBC attempts to sterilize capital inflows.

Beijing needs to be more forthright in describing its financial and monetary system. The State Council announced earlier this year that it wants to achieve an external balance in 2006, but China’s overall trade surplus will match or exceed last year’s historical high of $102 billion. Likewise, the PBC constantly says its goal is to pursue a “sound monetary policy” and “keep the RMB exchange rate basically stable at an adaptive and equilibrium level.” Yet, money and credit continue to grow at rates inconsistent with long-run price stability, and the exchange rate is still pegged at a disequilibrium level.

Source: UBS Asian Economic Monitor , “China by the Numbers (July 2006),” p. 6.

The PBC recommends “better coordination among the various macro policies, transformation of government functions, and institutional innovation.” It also promises that the “foreign exchange system reform will be deepened,” including “facilitating trade and investment, promoting capital account convertibility, expanding channels for capital outflow, fostering the growth of [the] foreign exchange market, [and] further improving the RMB exchange rate regime.” Finally, the PBC has committed to “preserve the continuity and stability of monetary policy, and promote appropriate growth of money and credit, in order to provide a stable monetary and financial environment for economic restructuring.” 21.

Those objectives are laudable, but thus far the rhetoric has failed to match the reality. For example, in its “Monetary Policy Report” for 2003, the PBC stated that it “continued to carry out sound monetary policy,” even though broad money growth (M2) had grown on average by 20 percent that year. The report also said that the PBC would maintain the RMB exchange rate “at an adaptive and equilibrium level.” 22 Yet, the RMB/dollar rate remained fixed at 8.28 from 1994 until July 21, 2005, when it was revalued by 2.1 percent, and has only appreciated slightly since then to about 7.98 RMB/dollar. As a result, China’s foreign exchange reserves have more than doubled since 2003 (see Figure 2). Clearly, financial repression is the hallmark of China’s state-directed financial regime. The pace of reform will depend largely on how much power the CCP is willing to give up in favor of the flexibility and liberalization needed for maintaining robust economic growth and stability.

The Politics of China’s Economic Reform Movement.

Since the start of the reform movement in late 1978, China’s leaders have declared that the CCP’s top priority should be to achieve robust economic growth and improve the standard of living. They chose this path of “peaceful development” to minimize the likelihood of civil and economic unrest that dominated the Mao regime. The failure of central planning and the Soviet development model led to institutional innovation and economic restructuring. China’s accession to the World Trade Organization (WTO) in December 2001 was further evidence of the commitment to liberalize trade and the financial sector.

Progress has been made since 2001, but as the foregoing analysis implies much remains to be done. 23 There has been much discussion of how China should sequence its economic reforms and make the transition from financial repression to capital freedom. It is clear that opening capital markets without reforming state-owned banks and without maintaining monetary stability could lead to substantial capital flight and exacerbate the problem of nonperforming loans. Moreover, there must be an effective legal system to protect newly acquired private property rights.

In a recent interview, Zhou Xiaochuan, the head of the PBC, emphasized that China is committed to create an institutional framework for a more flexible exchange rate regime “based on market demand and supply,” and “gradually realize RMB convertibility … by lifting the restrictions on cross-border capital movements in a selective and step-by-step manner.” In sequencing the financial sector reforms, the first priority is to put the banking system on a sound footing by recapitalizing the large state-owned banks and turning them into joint-stock companies with the participation of foreign strategic investors. Further progress must also be achieved in widening the scope of foreign exchange transactions, including liberalizing the capital account. Zhou recognizes that institutional change cannot occur overnight because “people need some time to learn and adapt to change.” A new “mindset” must be developed. Moreover, he understands that China “cannot wait to start reforming the exchange rate regime until all banking reform measures have been completed.” 24 Reform must move along a broad front.

Financial restructuring is occurring and the new exchange rate regime should allow for more flexibility, but one should not think that the CCP would easily give up its control over the financial sector or allow the exchange rate to be set by market forces. Political change must accompany economic reform if capital freedom is to be fully realized.

Policy Recommendations.

The United States and China need to continue the policy of engagement and recognize that it is more important to focus on the issue of capital freedom than on the narrow question of the proper exchange rate. China should continue to liberalize its exchange rate regime, open its capital markets, allow full convertibility of the RMB, liberalize interest rates, and use domestic monetary policy to achieve long-run price stability. Most important, China needs to privatize its stock markets, its banks, and its firms.

The need for reform of China’s financial sector is widely recognized by Chinese officials and leading economists. Wang Zili, vice director of the Guangzhou Branch of the PBC has emphasized the need for market-based interest rates that reflect the supply and demand for funds. He argues that without liberalization, the interest rate cannot effectively function as a tool of monetary policy: “A prerequisite for interest rates to take effect in macro-regulation is that capital demand and supply should be highly market-oriented.” Thus, “the most important thing for us to do is to form a reasonable interest rate structure.” 25 Recently banks have been given more discretion in setting loan rates, but the PBC still relies on administrative measures to curb excessive money and credit growth.

The PBC’s Monetary Policy Committee has been concerned with the lack of flexibility in the current financial system and made the following recommendations at its third quarterly meeting in 2005:

“The market itself should be allowed to play its role in economic restructuring.” “Market-based interest rate reform policies should be continuously carried out.” “Measures should be taken to further improve the managed floating exchange rate regime and maintain the exchange rate …at an adaptive and equilibrium level.” “Efforts should be made to advance financial reform” and “to enhance the effectiveness of monetary policy transmission.” 26.

Those pro-market policy recommendations are a positive sign and a clear signal that China’s top policymakers are aware of what needs to be done to improve the financial architecture.

If China is to carry out its plans for financial liberalization and have a flexible exchange rate regime, the PBC must have greater independence. Indeed, He Fan and Zhang Bin, economists with the Chinese Academy of Social Sciences, have argued that Beijing “must make implementation of an independent monetary policy its top priority.” 27 With greater independence will come greater transparency and credibility. Until that time, the PBC will be heavily politicized and its statements will lack the credibility necessary to assure global investors that stop-go monetary policy has ended.

In addition to internal pressures for financial reform, China is facing external pressures from the U. S. Congress and the WTO for ending exchange and capital controls. China has promised to allow full participation by foreigners in its banking sector by 2007 and to further open to foreign portfolio investment. However, China is intent on moving at its own pace, especially regarding the transition to a floating exchange rate regime. According to Zhou, the “noises” being made on Capitol Hill (e. g., by Democratic Senator Charles Schumer and Republican Senator Lindsey Graham) for protectionist measures-if China does not significantly revalue the RMB/dollar exchange rate-“will not change the basic conditions and sequence of China’s exchange rate reform.” 28.

Congress can best foster sound U. S.-China relations by not treating China as an inevitable enemy and by taking the opportunity to capitalize on China’s emergence as a market economy, albeit a “socialist market economy.” In particular, U. S. policymakers should.

treat China as a normal rising power, not as a probable adversary; continue to liberalize U. S.-China relations and hold China to its WTO commitments; recognize that advancing economic freedom in China has had positive effects on civil society and personal freedom for the Chinese people. 29.

Conclusão.

President Hu Jintao’s “big idea” is to create a “harmonious and prosperous society” via “peaceful development.” To achieve that goal, however, requires institutional change-namely, a genuine rule of law that protects persons and property. As Wu Jinglian, one of China’s leading reformers, recently stated: “If we don’t establish [a] fair rule of law and don’t have clear protection of property rights, then this market economy will become chaotic and corrupt and inefficient.” 30 It also requires “new thinking,” so that people come to understand and appreciate how nonintervention ( wu wei ), in the sense of limited government, is conducive to a spontaneous market order.

Long before Adam Smith, Lao Tzu argued that when the ruler takes “no action,” “the people of themselves become prosperous.” 31 China’s leaders should turn to “Lao Tzu thought” if they want to realize a “harmonious and prosperous society.” The success of the reform movement-and China’s growing middle class-has come from increased economic freedom, not from top-down planning. Trade liberalization and the growth of the nonstate sector have been the hallmarks of China’s new economy. It is now time to get rid of the last legacy of central planning-state-directed investment and capital/exchange controls-and end financial repression.

Congress would be wise to focus on capital freedom rather than bash China for its large trade surplus with the United States, and blame that imbalance on an undervalued RMB/dollar exchange rate. 32 Protectionist measures to force China to revalue would place a large tax on U. S. consumers and not advance capital freedom. 33 Adherence to the principles of a liberal international order-as opposed to muddling that policy conception by threatening to adopt protectionist measures intended to force international agreements that may distort the international price system-should be the primary object of U. S. policy. 34.

For its part, China needs to follow the Tao of the market if it is to fulfill the promise of “peaceful development.” Ending financial repression by liberalization, privatization, and competition would increase the chances for political reform. The United States and other free countries can help China move in the right direction by adhering to a policy of engagement rather than reverting to destructive protectionism.

We do not want to repeat the mistakes of the 1930s, when the Smoot-Hawley tariff and monetary policy errors effectively ended the liberal international order. 35 Free trade and financial integration are essential for prosperity and peace. As Cordell Hull, U. S. secretary of state from 1933 to 1944, wrote, “Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition with war.” 36.

1 For a discussion of the new Bretton Woods system, see Michael P. Dooley, David Folkerts-Landau, and Peter Garber, “An Essay on the Revived Bretton Woods System,” NBER Working Paper, no. 9971, September 2003.

2 See John Greenwood, “The Real Issues in Asia,” Cato Journal 20, no. 2 (Fall 2000): 141-57.

3 See Anna J. Schwartz, “Do We Need a New Bretton Woods?” Cato Journal 20, no. 1 (Spring/Summer 2000): 21-25.

4 See John B. Taylor, “What Comes after ‘Bretton Woods II’?” Wall Street Journal , August 15, 2005, p. A12.

5 According to a recent study by Dan Ikenson, a trade policy analyst at the Cato Institute, “currency values have had little to do with changes in the trade balance in recent years.” See “Currency Controversy: Surplus of Politics, Deficit of Leadership,” Center for Trade Policy Studies, Free Trade Bulletin , no. 21, May 31, 2006, p. 1.

6 See Alan Greenspan, “The Evolving U. S. Payments Imbalance and Its Impact on Europe and the Rest of the World,” Cato Journal 24, nos. 1-2 (Spring/Summer 2004): 1-11.

7 Wanfeng Zhou, “Dollar Up as U. S. Data Exceed View: China Looks to Diversify Reserves, Igniting U. S. Deficit Concern,” MarketWatch (marketwatch/News), July 25, 2006.

8 On recent reforms, see Fred Hu, “Capital Flows, Overheating, and the Nominal Exchange Rate Regime in China,” Cato Journal 25, no. 2 (Spring/Summer 2005): 357-66, and Stephen Green, “China: Interest Rates, QDII, and Liquidity Challenge,” On the Ground-Asia , Standard Charter Bank, Hong Kong, April 17, 2006. Green calls the April 13, 2006 liberalization of controls on capital outflows for qualified banks, mutual funds, and insurance companies “revolutionary.” The change is an important signal for reform, but the measures still need to be implemented and the sums involved will be small.

9 The UBS capital restrictiveness index is based on a score of 10 (closed capital account) to 1 (open capital account). In calculating this index, UBS takes account of “the number of legal impediments to capital account transactions” and “the size and variability of actual ex post capital flows.” Jonathan Anderson, “How to Think About China (Part 6): Seven Ways China Won’t Change the World,” UBS Asian Economic Perspectives , November 28, 2005, p. 23, n. 3.

10 On the difficulty of preventing “hot capital” from entering China, see Green, “Hot Money: If Only We Knew How Much,” On the Ground-Asia , Standard Chartered Bank, Hong Kong, August 3, 2006.

11 See William R. Cline, “The Case for a New Plaza Agreement,” Policy Briefs in International Economics , no. PB05-4, December 2005, Washington, D. C., Institute for International Economics.

12 For a fuller treatment of the Plaza and Louvre agreements and the mistakes in Japanese monetary policy, see David F. DeRosa, In Defense of Free Capital Markets: The Case against a New International Financial Architecture (Princeton, N. J.: Bloomberg Press, 2001), pp. 8., 36-54, 199.

13 Greenwood, “The Real Issues in Asia,” p. 146.

15 On how reserves could be used to help China make the transition to economic liberalism, see Deepak Lal, “A Proposal to Privatize Chinese Enterprises and End Financial Repression,” Cato Journal 26, no. 2 (Spring/Summer 2006): 275-86.

16 Green, “CNY Appreciation Will Increase China’s Surplus,” On the Ground-Asia , Standard Chartered Bank, Hong Kong, August 1, 2006, p. 2.

17 Hans Genberg, “Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?” Bank of Greece Working Paper, no. 41, May 2006, p. 17. Adopting a single currency for Asia is neither economically nor politically feasible at this time or in the foreseeable future. Economic conditions and political environments are too diverse to warrant a currency union. See Jonathan Anderson, “Still Not a Great Idea,” UBS Asian Focus , May 12, 2006.

18 “A 125-Year Picture of the Federal Government’s Share of the Economy, 1950 to 2075,” CBO Long-Range Fiscal Policy Brief , no. 1, July 3, 2002, Washington, D. C., Congressional Budget Office, ftp. cbo. gov/showdoc. cfm? index=3521&sequence=0.

19 John Greenwood, “The Impact of China’s WTO Accession on Capital Freedom,” Cato Journal 21, no. 1 (Spring/Summer 2001): 93.

21 “An Interview with the PBC Spokesperson on Current Issues,” May 23, 2006, pbc. gov. cn/english//detail. asp? col=6400&ID=684.

22 “China Monetary Policy Report, 2003,” the People’s Bank of China, Executive Summary, March 17, 2004, pbc. gov. cn/english//detail. asp? col=6613&ID=31.

23 For a summary of China’s steps toward financial sector liberalization since December 2001, see Su Ning, deputy governor of the PBC, “Press Ahead with Reform and Opening-Up and Promote the Rapid and Healthy Development of the Financial Sector,” July 10, 2006, pbc. gov. cn/english/detail. asp? col=6500&id=121.

24 “Governor Zhou Xiaochuan Speaks on Issues Related to the Reform of the Exchange Rate Regime,” People’s Bank of China News, September 10, 2005, pp. 1-2, 13. Available at pbc. gov. cn/english//detail. asp? col=6400&id=572.

25 “Reasonable Interest Rate Structure Urged,” China Economic Net , September 22, 2004, en. ce. cn/Business/Macro-economic/200409/20/t20040920_1804840.shtml.

26 “Monetary Policy Committee of the PBC Held the 3rd Quarterly Meeting of 2005,” People’s Bank of China News, September 26, 2005. Available at pbc. gov. cn/english//detail. asp? col=6400&id=593.

27 He Fan and Zhang Bin, “No Haste in Forex Reform,” China Business Weekly , February 9-15, 2004, p. 21.

28 “Governor Zhou Xiaochuan,” p.3.

29 For an expansion of these policy recommendations, see Ted Galen Carpenter and James A. Dorn, “Relations with China,” in Cato Handbook on Policy , 6th ed. (Washington, D. C.: Cato Institute, 2005), chap. 61.

30 Wu Jinglian quoted in “Official Urges Rule of Law in China,” International Herald Tribute , March 6, 2006.

31 See James A. Dorn, “China’s Future: Market Socialism or Market Taoism?” in China in The New Millennium , ed. James A. Dorn (Washington: Cato Institute, 1998), pp. 104-6.

32 Stephen Green argues that China’s large processing trade means an appreciation of the RMB/dollar rate could increase China’s trade surplus or at least not substantially decrease it. See Green, “CNY Appreciation.”

33 See Daniel Griswold, “Who’s Manipulating Whom? China’s Currency and the U. S. Economy,” Trade Briefing Paper, no. 23, July 11, 2006 (Washington, D. C.: Cato Institute, Center for Trade Policy), pp. 10-11.

34 On the shortcomings of the negotiations approach to a liberal international order and the benefits of a principled approach, see Jan Tumlir, “Economic Policy for a Stable World Order,” in Dollars, Deficits, and Trade , ed. James A. Dorn and William A. Niskanen (Boston: Kluwer, 1989), chap. 18. Also see Roland Vaubel, “A Public Choice Approach to International Organization,” Public Choice 51 (1986): 39-57, and Deepak Lal, Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century (Princeton, N. J.: Princeton University Press, 2006).

35 On the Smoot-Hawley tariff and the end of the “liberal international economic order,” see Lal, p. 39.

36 Cordell Hull, The Memoirs of Cordell Hull , vol. 1 (New York: Macmillan, 1948), p. 81.

109 th Congress: Second Session.

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