Paul Krugman calls for U.S. policymakers to “get tough” with China and Germany over trade and related issues. I’m not sure how relevant this is to Krugman’s analysis, but I do think it’s worth observing that even though this “Chermany” duo makes a pair in some ways, in other respects they’re quite different. Anecdotally, when I was in Germany and would ask business leaders and policymakers if they thought Germany should alter the export-oriented nature of the economy, the answer was always and everywhere “no.” Not a single German person outlined to me a single policy measure that they endorsed to achieve that goal, nor did any of them endorse the goal.
China was totally different. Absolutely everyone in China at least claimed to believe that export-led growth was not a path to sustainable Chinese development or a sustainable Chinese economy. People didn’t agree with each other about the best way to rebalance the Chinese economy and people didn’t necessarily agree with the U.S. Treasury Department about the centrality of the currency peg. What’s more, Chinese policymakers are actively engaged in various efforts to rebalance the economy. The PRC ran a trade deficit in March and earlier this week Commerce Ministry spokesman Yao Jian “said that China expects its trade surplus this year to shrink sharply compared to 2009, when the surplus fell by around $100 billion.”
Now personally I think the Treasury is right and currency revaluation should play a larger role in China’s efforts at rebalancing. That seems to me to be, for example, a better way to achieve higher real living standards for factory workers than going through a wave of strikes and such. But this is different from a German situation in which there’s no desire to rebalance.