Greenspan on China

Greenspan made some reasonable points about US trade with China during his testimony before the Senate Finance Committee today. First, he said that a yuan revaluation against the dollar probably will do next to nothing to rescue US manufacturing. Second, he pointed out that tariffs on Chinese products will be equally ineffective.

Greenspan, testifying before the Senate Finance Committee, said some “mistakenly believe” that a marked increase in the value of the Chinese currency, the yuan, relative to the U.S. dollar “would significantly increase manufacturing activity and jobs in the United States.”

“I am aware of no credible evidence that supports such a conclusion,” he said.

…Some lawmakers in Congress want to impose hefty 27.5 percent tariffs on Chinese goods flowing into the United States if Beijing doesn’t move to a more flexible currency system.

Greenspan said such tariffs, if implemented, would lower imports from China but would also raise imports from other “low-cost” sources of supply in other countries.

“U.S. imports of textiles … assembled computers, toys and similar products would in part shift from China as the final assembler to other emerging-market economies in Asia and perhaps in Latin America, as well,” Greenspan said. “Few, if any, American jobs would be protected.”

I actually have to agree with Greenspan on this one. I find it hard to believe that even a large change in China’s exchange rate – say 30% to 50% – will suddenly enable US manufacturers of labor-intensive goods to compete with Chinese labor costs. Likewise for a tariff of 27.5%. Each of those events may shift the composition of US imports somewhat, away from China and toward other developing countries, and each would make US consumers a bit poorer in terms of purchasing power… but neither would do much to stop the ongoing transformation of the US economy away from manufacturing and toward other types of production.

On the other hand, a little more attention to helping those who are losing out in this economic transformation would be most welcome… though I’m not going to hold my breath.