Hurting the U.S. in Order to Hurt China

Derek Scissors / September 16, 2010

A lot of people are unhappy with China. They’re unhappy for several reasons, but trade and investment might top the list. Some are demanding that the U.S. government take steps to punish the PRC. A few of these steps make only a bit of sense—others make no sense at all. All of them, however, harm the American economy in addition to harming the Chinese economy, which is an odd way to cure a recession.

There is cause to be unhappy with Chinese policy. Among other actions, China heavily subsidizes state-owned enterprises, granting them powerful regulatory protection, loans which are often close to government handouts, free land, and so on. These serve to inhibit American exports to the PRC and push Chinese consumers to buy inferior products.

Chinese subsidies are a tough nut to crack. They’re difficult to measure and, because of that, the World Trade Organization is not well-equipped to handle them. Because the real job is hard, some Members of Congress, labor unions, and industrial groups have found politically easier targets. One is the exchange rate; another is Chinese firms investing in the U.S. (more…)