In currency struggle, China is victim, not offender

• Source: Global Times
• [22:34 January 06 2010]
• Comments

He claims "that for the next couple of years Chinese mercantilism may end up reducing US employment by around 1.4 million jobs."

Krugman warns China by concluding that "the very mild protectionism it's currently complaining about will be the start of something much bigger."

The US is losing jobs to China because US trade policy encourages cross border wage arbitrage. Even if China did not exit, US transnational companies would ship low-paying jobs o  shore to other low wage countries and regions.

In the long run, a strong innovative industrial base with rising wages is the best guarantee for full employment.

Until US trade policy focuses on this economic truth, blaming China may make US workers feel good, but it will not solve job loss problems that are fundamentally created by US trade policy.

The cure for cross border wage arbitrage is allowing the efficiency market hypothesis to function in the global labor market, thus bringing wages in low wage economies such as China's up to wage levels in the advanced economies for equal work.

This issue cries out for international cooperation, but there is still no progress. It is glaringly absent from WTO trade negotiation and bilateral strategic and economic dialogues and summits.

What the world economy needs now is global full employment with rising wages. It does not need the myopic rationalization of obsolete protectionism.

The author is a Roosevelt Institute Braintruster and an independent commentator on culture, economics and politics. hliu@ mindspring.com