http://www.forbes.com/sites/timworstall/2016/12/02/proof-that-china-is-a-currency-manipulator-as-donald-trump-says-so-subsidise-imports-from-china/2/#426b9c446e82
DEC 2, 2016 @ 11:45 AM
Tim Worstall , CONTRIBUTOR
Donald Trump, and to be fair some others, have been telling us for a long time that China is a currency manipulator. And it would appear that The Donald, now President-elect, and those others have in fact been correct. The unfortunate thing for their claim though is that, as I've remarked before, the evidence is that China is manipulating the yuan up, exactly the opposite of the original assertion. All of which leads to a most interesting policy proposal. If everyone really does mean to go through with this idea of designating them as such, as manipulators, and then doing something to sort it out, then logically the US should subsidise Chinese imports into the US.
No, I'm not a great fan of Trump's views on trade nor of all too many other people at present but even I don't think they're going to do that. Despite it being the logical outcome of what they have been saying.
Here's the latest news:
Alarmed at rising capital outflows from the country, China is said to have tightened the rules related to fund repatriation by multinational firms.
The State Administration of Foreign Exchange has instructed banks to sharply limit the money that companies can move out of the country and into their other operations around the world, according to the Wall Street Journal.
Until this week, it was possible for big firms to “sweep” US$50 million worth of yuan or dollars in or out of China with minimal documentation.
But now, the cap has been reduced to the equivalent of US$5 million, the report said, citing bankers and officials familiar with the matter.
The important thing to understand here is that capital leaving the country lowers the exchange rate. Quite obviously, to get the money out of the Chinese economy (if not just out of China) you have to sell the yuan and buy some other currency. That, in and of itself, lowers the yuan exchange rate. China has been restricting the ability of people to move money out of China for some time now, this is just the latest tightening of the screw.
As that original WSJ report states:
Beijing is fighting an increasingly vicious cycle of capital outflows that weaken the yuan. Most dramatically, the State Council, China’s cabinet, intends to tighten scrutiny of overseas acquisitions by domestic companies, The Wall Street Journal reported last week, which could result in deal delays or outright cancellations. Until now, few of China’s capital-control measures took obvious aim at foreign businesses.
So, the rules that China is deploying mean that China really is a currency manipulator. But it is manipulating the value up, not down as is the usual claim. And that makes the policy response, if we want to have one at all, rather more difficult. For the usual claim is that the manipulation is downwards--meaning that Chinese exports to America are cheaper for Americans. This, some say, is unfair competition and good Americans lose those "guhd jahbs" that Bernie Sanders keeps going on about. Myself I look at that the other way around. Manipulating the yuan down does indeed make exports to America cheaper and imports into China more expensive. Which means that such manipulation, if it is occurring, makes Americans richer (they must pay less for what they want) and the Chinese poorer (they must pay more). True, not many see it this way but that really is the way that it is.
However, stick with those who insist that we must do something about manipulation. If that manipulation is downwards then they insist we must place tariffs upon Chinese goods in order to be "fair." Quite why it's fair to make Americans pay more I don't get but that is what they say. But if the manipulation is up then there's a problem for American policy, isn't there? Because the opposite of tariffs is subsidies.
Thus, if everyone is being logically consistent, yes, China is a currency manipulator. And the moment we officially declare that they are and we're going to do something about it then we should add subsidies to Chinese exports to America.
No, obviously, not even I see anyone doing anything as absurd as that. But that's what should be done given the allegations being thrown around. So there's probably something wrong with the allegations, isn't there, if the correct policy response is ludicrous?