Don Boudreaux on the Chinese Currency Issue
Don Boudreaux is the anti-Krugman on Chinese currency issues. In this piece, he first explains that "a
lower-priced yuan causes Americans to buy fewer U.S. products and more Chinese products." Then, assuming arguendo -- more on arguendo assumptions soon in relation to the China - Publications AB report -- that "the Chinese government does in fact keep the price of the yuan artificially low," he asks: "Does this policy help the Chinese and harm Americans?"He answers:A low-priced yuan certainly shifts business to some Chinese producers and away from American producers who compete with them, ...But, he says:contrary to protectionists’ claims, Beijing’s efforts to lower the price of the yuan harms the Chinese economy and benefits the economies (including that of the United States) whose people trade with the Chinese.I'm not sure I completely followed his rationale for this conclusion (feel free to take a look and try to convince me). More generally, though, I think Boudreaux would analogize currency undervaluation to subsidizing exports, both of which he would say are bad for the exporting country, but good for the country doing the importing. In essence, he is saying that the benefits to consumers in the importing country outweigh the harms to specific producers in the importing country.One thing I wonder is this. I know he thinks the benefits to the U.S. mean that we should be happy with this kind of policy by foreign governments. But in terms of global welfare, does he think the world as a whole is better or worse off with this kind of policy?