On July 27 negotiators reached a compromise settlement in the world’s largest anti-dumping dispute, regarding Chinese exports of solar panels to the European Union. China agreed to constrain its exports to a minimum price and a maximum quantity. The solution is restrictive relative to the six-year trend of rapidly rising Chinese market share (which had reached 80% in Europe), and plummeting prices. But it is less severe than what had been the imminent alternative: EU tariffs on Chinese solar panels had been set to rise sharply on August 6, to 47.6%, as the result of a “finding” by the EU Trade Commissioner that China had been “dumping.” The threat of likely retaliation by China helped persuade the Europeans to back off from their determination to impose such high protective walls around their own solar panel industry.
Tag Archives: trade
McKinnon’s Claim that RMB-$ Appreciation Would Not Reduce Trade Imbalances
The International Economy magazine (Winter 2013) asks 16 authorities, “Can Changes in Exchange Rate Valuations Affect Trade Imbalances?” It is referring to the claim in a recent book by Stanford economist Ron McKinnon that pressure on China to let the renminbi appreciate against the dollar is fundamentally misconceived because such a movement in the exchange rate would not reduce China’s trade surplus nor American’s trade deficit. This is part of an old debate that pre-dates the rise of the China trade problem. Ron has long claimed that exchange rates don’t determine trade balances because they are “instead” determined by national saving versus investment. I thought Paul Krugman demolished the argument pretty effectively 25 years ago, with a textbook graph of internal balance versus external balance. But evidently many still fall for the argument (including some of the experts in the TIE symposium). So I try again:
Japan Adjusts
My preceding blog-post discussed the process whereby the undervalued renminbi and large Chinese trade surplus have begun to adjust in earnest, over the last three years.
The adjustment in the Chinese trade balance is reminiscent of Japan with a 30-year lag, like other aspects of the US-China relationshkp (though not all). Japan’s balance of trade in goods and services went into deficit in 2011, for the first time since 1980. Special factors have played a role in the last year, including high oil prices and the effects of the tsunami in March 2011. But the downward trend in the trade balance is clear. Even the current account temporarily showed a deficit in January. (Because Japan has long been the world’s largest creditor, a large surplus in investment income is usually enough to change any trade deficit into a surplus on the overall current account.)