New column: China syndrome

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I have a column in the new Time, with a New Orleans floodwall on the cover, and online here. It begins:

The Chinese executives were in New York City for a week of business-school classes. Even before economist Glenn Hubbard–dean of Columbia Business School and former chief of President Bush’s Council of Economic Advisers–finished teaching on Monday morning, it was clear that his students had done their homework.

Hubbard gave his mostly positive take on the state of the global economy, then asked for questions. Richard Feng, CEO of furniture maker Markor, went straight to issue No. 1 in U.S.-China economic relations: the ever louder demands from Capitol Hill that China let its currency rise as much as 40% against the dollar. That would, in theory at least, make Chinese products more expensive in the U.S. and U.S. products cheaper in China. Americans would buy less, the Chinese would buy more, thus reducing the huge trade imbalance between the countries– $20 billion in May alone and $233 billion in all of 2006. This deficit is a big political issue in America’s industrial heartland, where China gets the blame for a 19% drop in manufacturing employment since 2000.

But U.S. consumers benefit from cheap manufacturing in China, Feng argued through an interpreter. When Japan gave in to U.S. pressure in the 1980s to strengthen the yen, the result was a decade-long economic malaise. Even a 10% appreciation in the value of China’s currency would lead to losses for many Chinese firms, he said.

Hubbard agreed that “there have been enormous benefits to the U.S. economy” from trade with China. But he wasn’t buying the argument that the strong yen caused Japan’s economic troubles in the 1990s–pinning the blame instead on “extremely poor” monetary policy and messed-up banks. And while admitting that “we don’t really know the appropriate value” of the currency alternately and confusingly known as the yuan or renminbi (RMB), Hubbard rejected the idea that keeping it low helps the Chinese economy. “To the extent that there is an undervalued exchange rate, this is bad for China,” he said. Read more.

The executives were in town were in town for the China CEO Program put on by the Cheung Kong Graduate School of Business, Columbia Business School, and INSEAD. Richard Feng also goes by Feng Dongming.