Black and White Dollar

(photo: MoneyBlogNewz/flickr)

There have been many people who have suggested that the Washington Post has a pro-business bias. The Post seemed to confirm that view in a piece on the first-day as president agenda outlined by Mitt Romney, the presumptive Republican presidential candidate.

It noted that Romney said he would demand that China raise the value of its currency as one his day one items. It then told readers:

“But some China experts say Romney would nevertheless be risking a backlash from the Chinese — over an issue that is not a top priority.”

In a recent survey of the concerns of American businesses working in China, currency ma­nipu­la­tion was only the 26th-biggest worry.

‘You can’t go to the Chinese and say, “I demand eight fundamental changes!”‘ said Derek Scissors, a China expert at the conservative Heritage Foundation. ‘You’ve got to pick your thing.’”

Of course Scissors’ assessment is exactly right. The United States cannot simply make a set of demands on China and expect the Chinese government to accept them. It must prioritize its demands and be prepared to make concessions on issues of concern to China.

The Post implied that because the over-valuation of the dollar against the Chinese currency is not a major concern of business it should not be a concern to the United States. This only makes sense to someone who believes that the concerns of business should be given a priority over the concerns of the rest of the country. In fact, there is a clear opposition between the interests of many, if not most, businesses and the rest of the country on dealings with China.

According to mainstream economics, the main mechanism for adjusting a trade deficit is reducing the value of a currency. In other words, anyone who wants to see the United States move towards more balanced trade should want the dollar to fall.

(The Post should be in this camp, since it has endless tirades about the budget deficit. By definition, a trade deficit means that a country has negative national savings. Negative national savings means that either the public sector has a deficit or the private sector does, as we did in the housing bubble years because of huge over-building and a bubble driven consumption boom. Anyone who views those options as unattractive would want to see the trade deficit come down, if they understood economics.)

More balanced trade would create millions of new manufacturing jobs. (If we balanced trade, manufacturing would add close to 5 million jobs.) This would create a situation where ordinary workers would likely be able to push up their wages and again share in the benefits of productivity growth.

While that would be great news for most workers. It would not necessarily be positive for businesses who might see their profits diminish. It would also not be good news for higher end professionals like doctors, lawyers, and CEOs who are largely protected from international competition themselves. The higher wages received by workers will be passed on to them in the form of higher prices for many of the goods and services that they buy. Their trips abroad would also be more expensive.

In addition, many businesses like Wal-Mart have worked to establish low-cost supply chains in China and other developing countries. These businesses will be badly harmed if the cost of the goods they import rises by 15-20 percent.

Also, many businesses want China to make concessions in other areas that benefit them but don’t help the U.S. economy. For example, Pfizer and Microsoft want China to increase enforcement of intellectual property. Goldman Sachs wants more access to China’s financial market. These concerns would have to be put on the back burner if a U.S. president ever got serious about demanding that China raise the value of its currency.

In short, there is a clear conflict between business interests in China and the interests of the rest of the country. The Post told readers that they should only be concerned about business interests.

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Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’s Beat the Press blog, where this post first appeared.