China’s huge trade surplus in decline

This is no time to get all worked up over China’s currency manipulation. To use it as an excuse to resist the Obama administration’s pro-trade posture is perverse. This opposition weakens America’s competitive position. All of Asia – the fastest growing part of the world economy – is watching the debate over the Trans-Pacific Partnership. If Congress derails Obama’s trade policies, these countries will rightly conclude that the United States is not a dependable partner. By default, they would be swept into a trading system dominated by China.

To be clear: China’s currency manipulation has been real and harmful to U.S.-based firms and workers. By a variety of estimates, Chinese exports have probably cost two million or more American jobs since 2000. I have been a critic of the currency manipulation in the past and still am. In an ideal world, we would have moved energetically to eliminate it. But (surprise!) we do not live in an ideal world and, for many reasons, it’s less important now than it once was.

For starters, recall that trade-induced job losses are not (and never have been) America’s main employment problem. Domestic developments dominate the U.S. labor market, for good and ill. The American economy now supports about 150 million jobs; 2 million is a small share of that. But of course, if imports eliminated your job, it’s devastating.

Next, China is slowly retreating from export-led growth. To live by exports is to die by exports. You depend too much on the economic health of major customers. The Chinese have always known this abstractly. But after the 2008-09 financial crisis, they experienced it firsthand. Their U.S. and European export markets weakened dramatically. There’s also political vulnerability. At some point, importing countries may find massive inflows of foreign goods intolerable. They embrace protectionist policies, even if illegal under the World Trade Organization. Japan learned this lesson in the 1970s and ’80s.

What’s also clear is that, however undervalued China’s yuan once was, it’s less so today. Since 2005, China has allowed the yuan to rise gradually against the dollar, whether to placate the United States or to disengage from export-led growth. From 2005 to mid-2013, the yuan appreciated 34 percent against the dollar in nominal terms and 42 percent after adjustment for inflation, according to a report from the Congressional Research Service. A stronger yuan makes Chinese exports more expensive on world markets. These increases remain, because the yuan’s exchange rate hasn’t moved much since 2013.