Dr. DeLong is engaged is a rather spirited debate over at TPMCafe – one that mirrors the debate inside the Democratic party. It is a debate over trade, but it also is a debate over US grand strategy toward China’s rise.
DeLong argues that the United States has a compelling national interest in helping China get rich:
There is nothing more dangerous for America's future national security and nothing more destructive to America's future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible.
DeLong’s position – that the US needs to position itself as a friend of China’s economic development — is an appealing one. But it is also one that I suspect glosses over some big issues.
Both the US and Europe, which has stood by as China actively drove the RMB down v the euro, have done their part to support China’s development over the past few years. US imports from China have increased from $100 b in 2001 to $280b in 2006 (overall US imports from Asia are also rising as a share of US GDP; China isn’t just taking market share from others in Asia). Eurozone imports from China have gone from 62b euros in 2002 to something like 130b euros, maybe a bit more, in 2006. In dollar terms, the increase in European imports from China is far more impressive. Think of a rise from around $50b to over $160b. Both the US and Europe have supplied a lot of demand for Chinese goods over the past few years.
The risk of a protectionist backlash is no doubt rising. But so far, the US hasn’t taken any policy actions that have really crimped the expansion of China’s exports – which is what I think worries DeLong. Nor for that matter has the US government done much – if anything — to help in the US whose living standards have been adversely affected by China’s export success. DeLong and Jeff Faux would both agree that tax cuts for the have-mores whose assets are worth even-more thanks to large financial inflows from China doesn’t count.
The government of China, by contrast, seems determined to keep China poorer than it needs for to be. After all, the government of China, not the government of the US, actively intervenes in the market every day to hold China’s living standards down – or, if not China’s living standard, certainly the external purchasing power of all those paid in RMB.