As the November election approaches, legislators are telegenically bristling at the prospect of forcing China to take “corrective action” regarding its currency peg to the dollar. They are preparing a number of measures to try to stick it to the Chinese, including anti-dumping tariffs, and complaints to the IMF and WTO. But mostly they’re just pandering. As the Washington Times points out, China alone isn’t to blame for America’s gaping deficits:
the U.S. current account deficit is not the result of China’s undervalued currency, although that may be a contributing factor. The major reason is that U.S. domestic private investment exceeds domestic saving, and a bloated federal government is absorbing domestic saving for redistribution rather than productive investment. Unless the savings-investment gap is closed and the U.S. budget deficit reduced — by constraining the growth of government and reforming the tax code — U.S. and global imbalances will persist.
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