Why It's Time to Take Action Against Chinese Mercantilism

by: Howard Richman

In a June 30 commentary, "Steering U.S.-China economic relations toward a new normal," Washington Post business columnist Steven Pearlstein argues that we need to take real action now to end mercantilism, beginning with Chinese mercantilism. The entire commentary is worth reading. Here are just his action steps:

So if the urgent need is to rebalance the global economy by rebalancing the U.S.-China economic relationship, we are probably going to have to begin this process on our own. And that means establishing some sort of tariff regime that will increase the cost of imports not just from China, but other countries that keep their currencies artificially low, restrict the flow of capital or maintain significant barriers to imports of goods and services. The proceeds of those tariffs should be used to encourage exports in some fashion....

The time for diplomatic patience and gentle prodding has passed. Using the tools we have available, we need to do what we need to do to rebalance, restructure and revitalize our economy. And we need to do it now.

In this commentary, Pearlstein hits on several of the key points that my father, son and I made in our 2008 book Trading Away Our Future:

  1. Just talk doesn't work.
  2. The problem is mercantilism, not just currency manipulation, and not just China.
  3. We can do it within WTO rules.

Although Pearlstein doesn't discuss specific proposals, we do. After writing our book, my father came up with one that would be simple, yet effective: an across-the-board tariff on mercantilist countries' goods whose rate is proportional to our trade deficit with that country. The rate would come down as the mercantilist governments remove their barriers to our products. The increased demand for American products, resulting from them taking down their barriers, would lead to increased investment in American manufacturing.

Disclosure: Author long CYB

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