U.S.-China Trade Relations: Currency and Trade Policy

Introduction and Overview of Crook's Argument

Clive Crook's 2010 article, "Time to Get Tough with China," published in the Financial Times, is a pointed op-ed about how the United States — mired in its own economic recession — needs to adopt a tougher posture toward China, specifically on the topic of trade. The international trade policies in place at the time favored China, a nation whose economy had rebounded much faster than that of the U.S., and which held a significant currency valuation advantage. As Crook saw it, China was poised to initiate a currency war with the West — and specifically with the United States — if the U.S. failed to respond to the demands of the Chinese government (Crook, 2010). Those demands included a slow, controlled revaluation of the yuan and the closure of a trade gap that had been created during past presidential administrations through tariffs and taxes on certain imported Chinese goods.

Each time the U.S. levied sanctions against China in response to its artificially low currency valuations, China retaliated with further trade restrictions (Crook, 2010). Crook argues that if the U.S. hoped to pull out of the global economic recession in any reasonable timeframe, it needed to toughen its policies toward China in order to gain a greater economic trade advantage over the eastern superpower. He also argues that a more assertive U.S. approach to trade agreements and currency valuation could reduce the need for future economic stimulus, at least in the short and medium terms.

China's Trade and Currency Advantage

Some advantages of the U.S. adopting a harder line with China include the diminishing of the economic advantage China then held in terms of trade agreements and restrictions. A more balanced trade environment could open the door to expanded U.S. production and greater Chinese consumer demand for American goods — an outcome that would unquestionably benefit the U.S. economy. If China recognized that the U.S. was genuinely committed to leveling the playing field, it is possible that the communist nation would begin to accord greater respect to U.S. trade policies, lending further credibility to American economic strength and accelerating recovery from the recession.

Pros of a Tougher U.S. Trade Stance

A major drawback of the argument for getting tougher with China is that China, as one of the world's leading superpowers, would likely retaliate further against the U.S., potentially widening the already substantial trade gap between the two economies. The United States was not in a strong economic position to begin demanding that China reform its currency valuation policies and trade agreements with the West. Crook's argument for action is nonetheless compelling, and it leaves the reader wondering why the U.S. presidential administration of the time had done relatively little to address the growing problem of U.S.-China trade disagreements.

Conclusion

Whatever course of action the U.S. chose to pursue, the urgency of acting quickly was clear. The global economic recession had given countries like China an opportunity to exploit the economic vulnerabilities of other nations, and the United States was a primary target. This was not a new phenomenon, but the circumstances created a real opportunity for the U.S. to turn the tables in its own favor — with respect to trade balances, overall economic strength, and world currency valuation. Decisive and well-calibrated action was needed to prevent further erosion of America's position in the global economy.