You are not alone. The renminbi is with you. But it has managed to pull off the impressive trick of being a lot less undervalued without actually having risen very much.
The IMF said this week what others (especially the Peterson Institute, whose estimates often get a lot of airtime on Capitol Hill) have also suggested: the RMB is a lot less undervalued than a year ago. The Fund, which now combines various different concepts of currency valuation to take a judgment, called it “modestly undervalued” without putting a number on it.
The Peterson gurus are less coy: they reckon the RMB needs to rise just 2.8 per cent in real trade-weighted terms (i.e. against a basket of currencies, adjusting for inflation), and by 7.7 per cent against the dollar, to achieve a sustainable external position. These are big changes from a year ago, where the trade-weighted and dollar undervaluations were 16 per cent and 28.5 per cent respectively. (Naturally these changes don’t seem to have made much difference to the China-bashers in Congress or out on the campaign trail, who tend to use the Peterson estimates when it suits them and ignore them otherwise.) Read more
No word left minced in this fairly fierce resignation letter (obtained by CNN) sent by Peter Doyle, who is quitting the European department of the IMF after 20 years at the Fund, attacking particularly its role in the eurozone crisis.
The money quotes:
After twenty years of service, I am ashamed to have had any association with the Fund at all…
This is not solely because of the incompetence that was partly chronicled by the OIA [Office of Internal Audit and Inspection, though he may be referring to this document by a different watchdog body] report into the global crisis and the TSR [Triennial Surveillance Review] report on surveillance ahead of the Euro Area crisis. More so, it is because the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed here…
Further, the proximate factors which produced these failings of IMF surveillance – analytical risk aversion, bilateral priority, and European bias - are, if anything, becoming more deeply entrenched, notwithstanding initiatives which purport to address them.
There have been some “calm-down-lads-calm-down” interventions from sage voices in the blogosphere about the competitive mercantilism going on out on the campaign trail.
All well-made points and I’ve said much the same myself in the past. Note in particular that neither candidate has actually proposed anything that would have stopped Bain Capital offshoring some functions of the companies they were running, which makes the whole focus on the issue even more peculiar. Read more
The debate around US corporation tax and offshoring points to American political dysfunction, says Alan Beattie. Read more
An extra note on outsourcing following my
spittle-flecked rant carefully argued polemic in the paper today. As Paul Krugman accurately enough points out, Mr Romney himself falls for the silliness of extrapolating from a company to an economy (as, I would contend, does Mr Obama).
There are some ways where I guess having run a company does give you some insight into national economic policy – the impact of business regulations, for example. But since Mr Romney’s main complaint seems to be about the onerous burden of the Obama healthcare plan and since he was in favour of the individual mandate before he was against it, he’s going to have difficulty with that one. Read more
If you can have remarks that are both pointed and veiled, Hillary Clinton managed it this week – her comments on the limitations of authoritarian capitalism clearly taking a swing at China without mentioning it by name.
The State Department has been trying to improve what Mrs Clinton calls America’s “economic statecraft”, appointing its first-ever chief economist and musing on ways to advance US influence in the global economy. It’s hard for the US to do so directly, especially with Congressional suspicion of bailing out foreigners – which has limited its role in the eurozone crisis – and of signing new trade deals. So noting that rich countries are generally democratic ones might be a way of extending American soft power. Read more
Another salvo in the exchange of trade artillery, as the US takes China to the WTO again, this time over Chinese anti-dumping duties on American SUVs. The place and timing of the announcement is obviously political – how awful and cynical, how do these politicians live with themselves – but so what? No surprise or indeed change there.
More interesting is that this signifies (if you are an optimist) that the WTO is doing its job of directing the torrents of protectionist passion down the canals of moderation*, or (for the pessimists) that the WTO’s dispute settlement process is getting clogged up with the consequences of misguided mercantilism.
The US is basically trying to restrain retaliation against one of its own protectionist actions – the ”safeguard” blocks it imposed on imports of Chinese tyres in the fall of 2009. Those also had political intent (possibly more justified, according to my unusually balanced view at the time) but which were also entirely legal. Read more
Saul Loeb/AFP/Getty Images
Continued discussion this week on winners and losers at last week’s EU summit, in particular eurozone guru Paul de Grauwe on why the ESM being able to buy sovereign bonds outright (which it already could, btw) is likely to do more harm than good for the likes of Italy and Spain. Using it to recap banks would be more useful, but it will take a while before Germany is satisfied that conditions are in place to take that route. (More evidence, as de Grauwe points out, that the endless bureaucratic EFSF/ESM dance is all just a way of trying to get other agencies to do what the ECB should be doing.)
Where does all this leave the rest of the world - and its favoured tool, the IMF - in its attempts to help the eurozone out of its crisis? The answer: struggling for relevance. The fund isn’t allowed to recapitalise banks directly or buy sovereign bonds in secondary markets; the only way it can use its money is by lending to governments. Read more
This is the kind of case that gets the WTO a bad name: confirming a ruling that the US acted illegally in requiring that beef and pork sold in America be marked with a country of origin label (hence the COOL acronym applauded by sub-editors worldwide). Predictably the WTO’s discontents are agin it.
But without getting into the technicalities of the case, which require more qualifications in food technology than I possess (ie >0) to explore fully, the principle behind the ruling is quite simple and quite fair. It’s whether the labelling has the effect of discriminating against foreign producers by being needlessly complex or otherwise unjustifiably difficult to comply. Read more
Those worrying about the US being in hock to the rest of the world have fresh reasons for alarm: the US net international investment position (what Americans owe foreigners minus vice versa) last year worsened by about a trillion and a half dollars to a nice round $4tn deficit.
Alarm and despondency! America going bust! Ravening wolves on the streets of Manhattan! Read more