China’s currency: Krugman vs. Herman

Over the past couple of days, economist Paul Krugman has spent an increasing amount of digital ink on the topic of China’s currency, and in particular, its value and the Chinese governments unwillingness, or intransigence in the face of global pressure to allow the RMB to appreciate naturally against other currencies.

Krugman’s argues that the US, and by default Europe, should turn the tables on China and enact trade penalties should the Chinese continue to forestall a significant appreciation of the RMB.

His argument in favour of punitive measures follows that an appreciation is necessary for the following reasons:

A)    As it stands, an unnatural RMB allows for the mass export of Chinese capital which leaves the rest of the world poorer.

B)    The appreciation of the RMB would allow for a surge in American exports.

C)    America has China over the barrel thanks to the bind the Chinese find themselves given their ownership of trillions in USD reserves.

He finishes his argument by noting that “never before has a nation followed this drastic a mercantilist policy.”

Now setting aside historical precedent, namely the Opium Wars, British attempts to limit manufacturing and industry in its colonies, or more recently, American-led IP conditionality at the WTO, there are a couple of important counter arguments to Krugman’s claims. Read the rest of this entry »

Sanctions against Iran: Ignoring history.

As many around the world contemplate the use of increased economic sanctions against an increasingly-belligerent Iran, we might want to pause and ask whether such sanctions have proven effective in the past.

I ask this question in part driven by a fascinating seminar I attended last week at the Waterloo-based Centre for International Governance Innovation entitled “Why do leaders fail to learn from history?”, led by Balsillie School scholars David Welch, Robert Patnam, Janet Lang and James Blight.

The talk itself was focused on the lessons from war, in particular how American involvement in Vietnam, Afghanistan in the 1980s and the Gulf War could, and perhaps should, have imparted greater lessons for the more recent forays into Iraq and Afghanistan, yet didn’t because of an innate belief in exceptionalism amongst powerful US foreign policy makers.

Whether correct or not, I believe that same concept of exceptionalism applies to the issue of sanctions and the ignorance of nearly all empirical evidence related to their use.

South Africa, Cuba, Burma and Iraq (amongst others) have each been subject to economic and trade related sanctions over the past three decades. Yet in all but the first case, the ruling government in those nations has long survived those issuing the sanctions. Read the rest of this entry »