The drums are beating louder for some sort of retaliation against China and its currency regime. Martin Wolf has a sobering column in today’s Financial Times-Currencies clash in new age of beggar-my-neighbour; Michael Pettis just wrote another very pessimistic column-Retaliation is Likely, and Robert Samuelson has a strident op-ed in The Wasington Post in which he calls for a starting a trade war with China if they do not revalue the RMB-The makings of a trade war with China.
Unfortunately it appears that everyone is talking past each other, while heading for a high speed train wreck (China’s trains are now the fastest in the world, for what it is worth). We need some creative thinking.
China can divert a portion of its annual purchases of US Treasuries, say $100 Billion, to a new WalMart China Assistance Program (WMCAP). Every American receiving food stamps or unemployment assistance would be eligible for a monthly card, issued by WalMart, paid for by China, applicable only to goods made in China. By limiting the card to Made in China products, China might be able to quell some of the likely domestic anger at such a program, as a good portion of the money will be recycled back to China and its factories and workers. Rinse, repeat, kick the can down the road until a real recovery kicks in.
The sovereign funds (SAFE and CIC) that manage China’s foreign exchange surplus may need to expand their mandates to include this type of a program, but that can be easy in China. The direct financial returns will be hard if not impossible to calculate, but whatever losses China sees may be more than justified if this helps avoid a much more damaging trade war.
In addition, China gets a big soft power win, as many unemployed Americans may form a better opinion of China, since it is the Chinese now putting money directly into their pockets.
No, I am not really serious. But we better start getting creative soon if we want to avoid a very damaging trade war.
Please tell me what you think in the comments.