Monday, April 18, 2005


I have no opinion on whether it's in our interests for the Chinese to revalue their currency. But, as Yglesias rightly points out - if this is indeed what we what we want them to do then putting a tariff on goods equal to the percent amount we'd like to them to revalue is roughly equivalent. Actually, it seems to me that such a tariff would be far superior than a simple revaluation. The tariff would increase the effective price on Chinese imports for consumers, which is of course the point, and reduce our trade deficit. It would raise lots of revenue for the government, paid for by Chinese exporters (and indirectly American consumers), reducing our fiscal deficit. In addition it wouldn't spike interest rates because being a tariff only on goods it wouldn't sharply increase the cost of American bonds to the Chinese, which would spike rates and raising our borrowing costs.

Again, I have no opinion whether revaluation is a desired outcome, but if it is I can't see how the tariff isn't actually a vastly superior option from our perspective.


1) raises costs of imports (bad)
2) improves trade balance (good)
3) spikes interest rates (potentially very bad)


1) raises costs of imports (bad)
2) improves trade balance (good)
3) does not spike interest rates (good)
4) raises revenue and reduces fiscal deficit (Good)

We have a winner!