A question that will haunt protectionists and free traders alike

The Financial Times’ Richard McGregor notes that China is making somewhat louder noises about continued appreciation of the renminbi: The Chinese ministry responsible for promoting exports has backed a further appreciation of the renminbi, removing one of the last remaining institutional lobbies in Beijing against a stronger currency. A think-tank attached to the commerce ministry ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

The Financial Times' Richard McGregor notes that China is making somewhat louder noises about continued appreciation of the renminbi: The Chinese ministry responsible for promoting exports has backed a further appreciation of the renminbi, removing one of the last remaining institutional lobbies in Beijing against a stronger currency. A think-tank attached to the commerce ministry said that an ?appropriate or modest? appreciation of the renminbi would benefit China?s economy and trade ?in the long run?. ?In the near term, a 3 per cent appreciation of the renminbi every year will not have an obvious or apparent influence on the overall increase of China?s trade,? said the report, which was posted on the ministry?s website. The ministry said previously a 3 per cent appreciation would wipe out the profits of many exporters because of the razor-thin margins under which businesses operate. However, the ministry?s position has become increasingly untenable, with the trade surplus soaring during the past 18 months, a period in which the renminbi appreciated by more than 6 per cent against the US dollar. (emphasis added) Six percent is not a lot, but clearly it's trending in the right direction. Which leads to an interesting thought -- if the renminbi continues to appreciate, but the bilateral deficit is not seriously affected, what does this mean for trade politics in this country? Protectionists will be robbed of the easy crutch that the U.S. runs a large trade deficit because of China's unfair trading practices. But free traders will be robbed of the argument that letting exchange rates float maes it easier to correct for current and capital account imbalances (see this Brad Setser post for more on the oddities of current global investment trends). Developing....

The Financial Times’ Richard McGregor notes that China is making somewhat louder noises about continued appreciation of the renminbi:

The Chinese ministry responsible for promoting exports has backed a further appreciation of the renminbi, removing one of the last remaining institutional lobbies in Beijing against a stronger currency. A think-tank attached to the commerce ministry said that an ?appropriate or modest? appreciation of the renminbi would benefit China?s economy and trade ?in the long run?. ?In the near term, a 3 per cent appreciation of the renminbi every year will not have an obvious or apparent influence on the overall increase of China?s trade,? said the report, which was posted on the ministry?s website. The ministry said previously a 3 per cent appreciation would wipe out the profits of many exporters because of the razor-thin margins under which businesses operate. However, the ministry?s position has become increasingly untenable, with the trade surplus soaring during the past 18 months, a period in which the renminbi appreciated by more than 6 per cent against the US dollar. (emphasis added)

Six percent is not a lot, but clearly it’s trending in the right direction. Which leads to an interesting thought — if the renminbi continues to appreciate, but the bilateral deficit is not seriously affected, what does this mean for trade politics in this country? Protectionists will be robbed of the easy crutch that the U.S. runs a large trade deficit because of China’s unfair trading practices. But free traders will be robbed of the argument that letting exchange rates float maes it easier to correct for current and capital account imbalances (see this Brad Setser post for more on the oddities of current global investment trends). Developing….

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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