In his latest NYT op-ed, Paul Krugman takes a break from worrying about the GOP and spending to return to another one of his big issues — Chinese currency manipulation.
Japan’s leaders, he notes, have rightfully been concerned about Chinese debt buying, and the effect that has on pushing up the yen (thus killing exports), and he wonders why we can’t get the same level of outrage here.
Basically, there are two reasons why American leaders are too scared to slap a tariff on China and penalise them for this kind of manipulation.
The first is that they’re worried China will stop buying our debt. The second is that they’re worried about retribution towards American companies in China.
It’s actually the second one that’s more interesting.
As for China not buying our debt, well… they’re already paring back their holdings, but between our Fed, and the global savings boom, it just hasn’t been much of an issue. Yields are very close to their all time lows despite China clearly losing its appetite for USTs. And to the extent that Chinese selling of bonds would hurt the dollar then, well, obviously to Krugman that’d be a good thing.
As for this issue of whether American companies doing business in China will see diminished opportunities, that plays into a much bigger theme, namely the crisis of confidence in the future of the Chinese market. Several business execs have warned about this — that China just isn’t as exciting of a place to be as they thought it would be. Already the government there hasn’t been “pro business” in the way they’d like it to be.
That would probably get worse, and in general Krugman’s prescription sounds like a recipe for trade war trouble.
But in a world where everyone wants to be an exporting country, it’s obvious that this central tension of the yuan is not going away.
We mentioned the re-emergence of the yuan issue in our guide to 10 stories investors must pay attention to right now.