Krugman: It's America That Has China Over A Barrel, Let's Take Advantage Of it

By the end of April Tim Geithner’s Treasury has to publish a semi-annual report that will either brand China as a currency manipulator or not.

Of course, everyone knows that China — like all countries — manipulates its currency, but these things are shrouded in theatre and politics and nuanced language, but the upshot is that it would apparently be a big deal if the Treasury actually made such a call.

Well, leading figures in the US are going to put as much pressure on Geithner to do so as they can.

In a fresh editorial out today, Krugman says it’s time the US began “taking on China.” That’s actually the headline of the column.

What’s most interesting about the column isn’t his call for China to let the Yuan rise in value, that’s old, but his argument that the US has nothing to fear from China.

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.

Bold and refreshing!

Meanwhile, while Krugman fights the intellectual battle in the media, NY Senator Chuck Schumer is prepared to go to take action in Congress. Word is that Schumer is set to introduce legislation that would go after China over manipulation, and it may resemble a bill he proposed in 2005 to slap huge tariffs on imports. That didn’t pass, but it sent a message.

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