David Frum

05.24.12

Tough on China

In his newest general election advertising message, Gov. Romney continues to hit at China as a currency manipulator. An under-valued Chinese currency bars American products and services as effectually as a tariff barrier. Yet while the World Trade Organization strictly polices tariffs, currency is "not our department." What can be done?

In his book, The End of Loser Liberalism, Dean Baker offers a fascinating idea. China engages in elaborate and costly maneuvers to hold its currency above 6 to 1 to the dollar. The U.S., which has the ability to generate infinite amounts of dollars, could announce that it will buy Chinese currency at 4 to 1. At that price, holders of Chinese currency will rush to the U.S. window to gain the benefit of the U.S. price. The dollar would depreciate, Chinese currency would rise; Chinese exports would decline, U.S. production would increase. The Chinese would be irritated no doubt, and regional experts will warn of the dangers of Chinese non-cooperation on other issues of concern to the U.S. But where is that cooperation precisely? On the Euro? Toward Iran? Where?