Snow in Shanghai in October?

Snow in Shanghai in October?

October 12, 2005

A miracle has happened in China. No, it’s not the weather. The Snow I’m talking about is the Treasury Secretary, who arrived in Shanghai today in advance of next week’s G-20 meetings in Beijing. The miracle? Just as the wheels of the plane touched down, China’s Ministry of Commerce announced a surprising, sharp drop in its September trade surplus to $7.6 billion.

What good fortune!

As you know, John Snow is in China on an official complaining mission; about the trade deficit, about textile exports, and about wanting more flexible exchange rates. Translation: please increase the value of the Chinese currency, the RMB, against the dollar so your stuff costs more in the US and people won’t buy so much of it. I have argued before that this cheap dollar policy would not be good for anyone. It would raise import prices in the US, lower our purchasing power, and give the Fed another excuse to push rates higher. And it would run the risk of destabilizing China’s growing economy and tipping them into deflation, with unknown political implications. Lower Chinese prices and wages is not what we need.

Next week Alan Greenspan arrives in Beijing for the G-20 meetings too. Bet you a (cheap) dollar we see another miracle before he lands.


John Rutledge

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