It Isn't China's
Fault: America Must Reform its Economy
"America's weakness isn't due
primarily to China’s lack of fair play. It is homemade. … For the U.S. to
emerge from its misery, it isn't enough to devalue the dollar relative to other
currencies. The country, once famous for its extraordinary flexibility, needs
to reform its labor market and invest in education as well as
infrastructure."
Once again, the world is going
batty. For two years, heads of state and finance ministers of the world's
largest nations have given their all to get a handle on the financial crisis.
But now that the global economy is picking up speed, and Germany's is growing
faster than previous years, common ground is rapidly diminishing. Even
a currency war is a topic of debate.
FINANCIAL TIMES VIDEO: Deflation puts investors in a spin.
The dispute over what
constitutes fair value for currencies, however, isn’t entirely new. For years,
Americans have lamented China's unfair export success, because their currency,
the yuan, has been kept artificially undervalued and is inconsistent with the
country's actual economic power. As a result, America's products are more
expensive than those of its Chinese competitors. At almost every round of
international negotiations in recent years, the United States has urged the
Chinese to change their behavior.
UNEMPLOYMENT DAMPENS MOOD
The reason that this currency
adjustment can’t come soon enough for the U.S., and Americans resent Germany’s export
success, is a simple one. While America's economy is growing again,
there aren't any jobs. High U.S. unemployment rates are dampening the mood.
“It’s the economy, stupid” is an old adage, the truth of which Barack Obama
dreads. For in the upcoming midterm elections on November 4, his Democrats will
likely have to reckon with big losses. Some of their bellicose rhetoric is a
consequence of that approaching date.
But the problems go much
deeper. America's weakness isn't due primarily to China’s lack of fair play. It
is homemade. The decline of the U.S. auto industry is an eloquent example.
Large sectors of the U.S. auto industry are scarcely competitive globally.
For America to emerge from
its misery, it isn't enough to devalue the dollar relative to other currencies.
The country, once famous for its extraordinary flexibility, needs to reform its
labor market and invest in education as well as infrastructure. Germany, a
successful location for industry despite the high costs, demonstrates that it
can be done.
