Krugman: Obama Better Be Talking Currency In Private Discussions With PRC Gov't

2009-11-16

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China's trade surplus and America's trade deficit surge.

That, at any rate, is the argument made in a new paper by Richard Baldwin and Daria Taglioni of the Graduate Institute, Geneva. As they note, trade imbalances, both China's surplus and America's deficit, have recently been much smaller than they were a few years ago. But, they argue, "these global imbalance improvements are mostly illusory — the transitory side effect of the greatest trade collapse the world has ever seen." (New York Times)

Yeah. If that "rebalancing" of the Chinese economy that we've all been waiting for has yet to materialize in any significant way, the end of the recession might be ugly for the US-China trade situation.

Need I remind anyone that 2010 is an election year in the US? The Republicans will be looking for any reason to take shots at Obama's foreign policy, and it wouldn't surprise me if surging trade deficit numbers become a political football next year.

By the way, I appreciate Krugman's suggestion that Obama confront the Chinese leadership on this issue in private, and not in a public speech. That's the right way to go: shake hands and say nice things when the cameras are on, but talk about tough issues in the appropriate forum.

Now we get to wait a couple of weeks until someone leaks to the press what actually went on behind closed doors.

Tags: U.S.-China Relations, Renminbi