Joseph Stiglitz writing in the Project Syndicate has shed light on the tension between China and the U.S. on the issue of currency misalignment or manipulation. The U.S. has over the years accused China of deliberately undervaluing its currency in order to boost exports and create a trade surplus. There is a plethora of literature on the issue of currency manipulation and WTO law about which I am not discussing here. Stiglitz's piece titled "No Time for a Trade War" touches upon two aspects that I found relevant: the role of the WTO in curbing the rise of protectionism and the futility of trade wars.
"When the Great Recession began, many worried that protectionism would rear its ugly head. True, G-20 leaders promised that they had learned the lessons of the Great Depression. But 17 of the G-20’s members introduced protectionist measures just months after the first summit in November 2008. The “Buy American” provision in the United States’ stimulus bill got the most attention. Still, protectionism was contained, partly due to the World Trade Organization."
Raising the issue of the futility of a trade war by labeling China as a currency manipulator and risking retaliatory trade measures, he feels that a trade war serves nobody's interests.
"No one wins from a trade war. So America should be wary of igniting one in the midst of an uncertain global recovery – as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere. Unfortunately, this global crisis was made in America, and America must look inward, not only to revive its economy, but also to prevent a recurrence."
I guess these are points that are quite evident but coming from Stiglitz it definitely requires a mention.
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