Business Beyond the Reef

Andy Xie published an analysis last week on Caixin Online about how the Obama Administration’s new export policy may heighten tensions with China.  Worth reading for his entire train of thought, I thought I would focus on the options Xie sees for increasing American exports.  In his State of the Union address, President Obama set a goal of doubling U.S. exports within five years.  Many pundits, including this one, have been skeptical, asking if such a feat is possible.  Xie lays out the options:

1. 

   Will U.S. Exports Bounce?

   Devaluation of the U.S. dollar.  Not highly likely.  The Fed has to begin tightening soon, which will put upward pressure on the dollar.  The dollar bottomed in May 2009, and has been steady or slightly rising since.

2. Exchange Rate Policy.  Xie argues that Obama will have to get more aggressive on China’s exchange rate, given the near unanimity of agreement that the yuan’s ties to the dollar have to be loosened, if not abandoned.  The assumption is that a rising yuan will make it easier to export U.S. goods and services, equivalent to a fall in the dollar.
3. Aggressive Trade Policy.  Obama has gotten a taste of the populist attractions of seeming to be tough on imports from China.  It started with tires, and has progressed to steel pipes, electric blankets and more.  More protectionist action will prove irresistible, especially since it can also be used to say the Administration is doing something about unemployment.

Like most macro thinkers, Xie ignores the less spectacular micro approaches of helping companies directly, educating and holding the hands of would-be exporters, taking firms that now sell to only one or a few foreign customers into new markets, introducing companies to international trade shows, and similar approaches.  The micro approaches won’t double exports in five years either, but they lay the groundwork for a permanent expansion of American exports.  Not just allowing exports to respond to exchange rate changes.

Some of Xie’s remedies are intriguing.  He advises China to open its capital markets to U.S. firms, taking some air out of China’s credit bubble and putting some into strained U.S. financial markets.  Allow big U.S. companies with China business to list on the Shanghai Stock Exchange.  Lower tariffs on U.S.-made goods to defuse opposition from American labor unions.  And open China’s agricultural markets to appease the politically-powerful American farm lobby.  Interesting stuff.

This entry was posted on Wednesday, February 17th, 2010 at 7:03 am and is filed under China, Exporting, Trade Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.