China-bashing based on bad economics

The United States' fixation on the "China problem" is now boiling over. From Google to the renminbi, China is being blamed for all that ails the US. Unfortunately, this reflects a potentially lethal combination of political scapegoating and bad economics that could end in tears.

The political pressures are grounded in the angst of American workers. After over a decade of relatively stagnant real compensation and, more recently, a historically sharp upsurge in unemployment, US labor is being squeezed like never before. Understandably, voters want answers. It is all because of the trade deficit, they are told - a visible manifestation of a major loss of production and employment to foreign competition. With China and its so-called manipulated currency having accounted for fully 39 percent of the US merchandise trade deficit in 2008-09, Washington maintains that American workers can only benefit if it gets tough with Beijing.

However appealing this argument may seem on the surface, it is premised on bad economics. In 2008-09, the US had trade deficits with over 90 countries. That means it has a multilateral trade deficit. Yet aided and abetted by some of America's most renowned economists, Washington now advocates a bilateral fix - either a sharp revaluation of the renminbi or broad-based tariffs on Chinese imports.