Your international economics must-read of the day comes from the estimable Paul Krugman, who pens a description of how China manipulates it's currency, why, and what should be done about it: Namely, Krugman isn't impressed by last week's announcement that China will let its currency float more readily against the dollar, because the policy doesn't correct the fundamental economic imbalance. He goes so far as to call for trade sanctions should China not respond to the world's requests for a policy change.
Unfortunately, political realities seem to make the kind of pushback Krugman calls for unlikely, given the U.S. desire for more cooperation from China on national-security issues like North Korea and Iran -- hence the subdued nature of U.S. complaints about the Renminbi. The only way I can see to convince the Chinese to move on this issue short of economic conflict is to exploit the inequities this policy creates in China, benefiting a relatively small sector of the Chinese economy and the political actors who support it. Those who don't benefit are becoming impatient, and we're seeing more strikes from disgruntled workers. Apparently, the Chinese government is hoping to pivot off these demonstrations to rebalance their economy, using them as an excuse to drive policy change.
Hopefully, though, that change will come quickly: The global economy needs it to maximize the benefits of recovery, and impatience is growing in the United States and around the world for a change; should that break out into tariffs and sanctions, everyone will suffer.
-- Tim Fernholz
