The American government was about to
declare China an exchange rate-manipulating country, but, in the face
of continuing bilateral negotiations, the American Treasury decided to
postpone the decision, probably because it expects China to yield somewhat,
as it did in 2005. In that year the United States Senate voted for a 27.5%
increase in tariffs on imported goods from China; this, however, did not
take place only because in the years following it China allowed for a
20% appreciation of the renminbi. However, since it once again pegged
its currency to the dollar during the crisis, the pressure is back.
The trade deficit between the United States and China has been falling
since 2008. Even so, eminent economists such as Paul Krugman and Martin
Wolf are convinced about the depreciated nature of the renminbi. Wolf
lists four dissenting arguments: ''first, while the intervention is huge,
the distortion is small; second, the impact on the global balance of payments
is modest; third, global imbalances do not matter; and, finally, the problem,
albeit real, is being resolved'' (Valor, 7 April 2010). However, none
of those arguments that the Financial Times columnist later sought to
refute is relevant. The basic fact is: China has a trade deficit, not
surplus, with the other dynamic Asian countries. Therefore, if the renminbi
is artificially undervalued, so are its neighbours' currencies.
What analysts do not understand when they observe the huge current account
surpluses of the oil-exporting countries and of the dynamic Asian countries,
including China, is that the surpluses derive from these countries' need
to neutralize the Dutch disease: that is, to neutralize the chronic overvaluation
of their exchange rate. In the case of the Asian countries, the Dutch
disease derives, not from abundant and cheap natural resources, but from
the combination of low wages and high wage dispersion between plant engineers
and blue-collar workers, as compared to rich countries. Since the exchange
rate is determined by the cheaper goods, if the country facing this problem
does not manage its exchange rate, it will be determined by those industrial
goods (fabrics, for instance), and will preclude the production of sophisticated
industrial goods, which require more skilled personnel, higher wages,
and high value-added per capita.
The Dutch disease is a market failure compatible with the long-term equilibrium
of a country's current account. This is the reason why a country affected
by the Dutch disease, but intends to industrialize and reach increasingly
higher levels of industrial sophistication, should necessarily manage
its exchange rate in order to shift it from the level of current account
equilibrium to the ''industrial equilibrium''. If the country succeeds
in this task (which is not easy), it is bound to present a current account
surplus. This is what is happening with the dynamic Asian countries.
From this analysis, a surprising consequence ensues. As more developing
countries become aware of their Dutch disease, they will try to neutralize
it and, if they are successful, will achieve current account surpluses.
Therefore, despite the fact that the stock of capital is much higher in
rich countries, what we will increasingly see in the near future is developing
countries presenting high current account surpluses and investing in rich
countries or lending money to them.
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