Saturday, September 15, 2012

Import Sanctions in Reaction to Currency Manipulation

Are They Necessary and Legal to Cure Resulting Trade Imbalances

By Scott Smith
Scott Smith is an advocate for free market economics, both nationally and globally. He studied Economics at Hillsdale College, and studying the legal framework that inspires economic growth was a passion of his while studying at Albany Law from where he graduated in the Spring of 2012. In his graduating year, Scott received the barrister award for trial and appellate advocacy.

China’s trade policy is hurting the United States and the world. Trading with China costs the U.S. three times more than the benefit, including 2.8 million American jobs.

China’s devalued currency serves to protect its domestic production, while simultaneously granting an unfair advantage to its exported goods in the global marketplace. Other Asiatic countries as well as Brazil, Russia and India have implemented similar currency policies to be competitive with Chinese exports. As a result, significant trade imbalances have fueled a global financial bubble. The international financial organizations, namely the WTO and IMF, which regulate unfair and damaging trade practices, have so far proven ineffective to cure the problem.

China’s actions have effectively created a global anti-stimulus. The anti-stimulus has come in the form of a liquidity gap. China’s currency policy injures the major global economy because the prominent countries are caught in a liquidity gap—they are depressed but unable to generate recovery because the relevant interest rates are already at zero. This liquidity gap has especially affected the Federal Reserve and policy makers as they scramble to boost the economy and cure the U.S. unemployment problem.

The U.S. government has taken a domestic multilateral approach to aiding U.S. economic recovery, including action by the Federal Reserve and proposed legislation known as the American Jobs Act. Among other things, proposed legislation H.R. 2378 would allow a tariff to be placed on imported goods from countries with an undervalued, manipulated currency.*
* Citations to references in this introduction are available in the paper.
To read the entire paper, open HERE.