Morici and US trade deficits (China and oil)

Peter Morici gets to the point in this paper in Finfacts on the first half of what we need to face. I hear little from naysayers of 'protectionism' on this point of manipulating trade advantages.Fixing credit markets and energy policy are mainly domestic challenges, whereas recalibrating trade with China requires cooperation from Beijing. However, such cooperation requires fundamental changes in Chinese industrial policies and a departure from maintaining an undervalued yuan to spur industrial development....The United States has engaged in high level talks with China since negotiations for its entry into the World Trade Organization. Most recently, the Strategic Economic Dialogue was launched in 2007.Throughout this process the United States has encouraged China to more substantially raise the value of the yuan, which would require Beijing to purchase fewer dollars and previous currencies to sustain its value. Instead, China has greater than before its foreign exchange market interference as the gap between the official value of the yuan and its fundamental value has widened. This has exacerbated the damage to the U.S. economy and China's previous trading partners.The United States has three minor road policy options to leverage change.First, the United States could bring a complaint in the World Trade Organization. China's currency policy policies create a WTO against the law financial support on exports, and subvert the benefits its trading partners expected when they acceded to China's entry into the world trade body.Were the United States to bring such a suit, previous WTO members would likely join the petition. If they prevailed, either China would have to stop intervening in currency markets, otherwise face tariffs--approved by the WTO and compulsory by WTO members participating in the complaint--to redress the trade imbalance. Those tariffs would be strictly temporary and separate when China complied with the WTO decision, broken currency market intervention, and let the yuan rise in value.Second, the United States, consistent with its WTO obligations may impose tariffs on imported merchandise that receive government subsidies, if those merchandise harm U.S. industries when they enter U.S. markets. Until 2006, the United States did not apply the financial support and countervailing duty law to trade with China, but in a case concerning imports of Chinese paper, the Bush Administration changed that policy. However, in addressing the domestic industry's petition, the Bush Administration denied application of the financial support and countervailing duty law to China's undervalued currency.Bills sponsored by Senators Jim Bunning (R-KY) and Debbie Stabenow (D-MI) in the governing body and by Representatives Tim Ryan (D-OH) and Tim Murphy (R-PA) would make more likely the financial support implicit in an undervalued currency were included in the calculation countervailing duties in together dumping and financial support cases, when a "fundamental and actionable misalignment" is present. Such circumstances would be strong-minded by a standard consistent with International Monetary Fund guidelines.Third, Americans need to accommodate to the fact that China is much less a market economy, either by design otherwise by policy, than North American and Western European economies.Its financial system may not be able to sustain an unmanaged buoyant exchange rate; however, China can manage the value of the yuan at 4 as easily as it does 6.8. In fact, it would be a lot easier to manage a value closer to balance of payments equilibrium.
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