In an editorial condemning the temporary tariffs on Chinese tires, the NYT comments that China: "maintains its currency at suspiciously low values against the dollar, artificially cheapening the cost of its exports to the United States." What is "suspicious" in this story? China maintains a managed exchange rate which is far below market levels. As a result of keeping down the value of its currency, its exports to the United States are far cheaper than what they would be if the Chinese government did not intervene to keep down the value of its currency. This is all pretty much accounting identity stuff. It is true by definition. China does keep down the value of its currency by buying massive amounts of dollars (which the media tell us we desperately need them to do). A lower-valued currency means Chinese imports are cheaper for people in the U.S. We know exactly what is going on in this picture. It is bizarre that the NYT feels the need to use a term like "suspicious" or that others refer to "manipulation" of China's currency. We know the situation -- the Chinese are not being sneaky -- the only question is how we choose to respond. In this case, the NYT feels superior in telling the steelworkers (who pushed for the tariffs) that any relief from the tariffs would be temporary. The steelworkers no doubt understood that the relief from a tariff which phases out over 3 years is temporary. Sometimes temporary relief is exactly what is needed. For example, Goldman Sachs and the rest of the big banks benefited enormously from temporary access to loan guarantees from the FDIC and low-cost loans from the Fed. In this case, three years of tariffs may allow thousands of workers the opportunity to finish their working careers and retire with a decent pension and health care. Yes, consumers will pay a bit more for tires, but next to how much we get soaked on health care, who would even notice?
--Dean Baker