Chinese Garlic and the renminbi
This New York Times article (free access but registration required) talks of new US farm lobby groups seeking new types of subsidy. To date almost all agricultural of the annual ~$15bn agricultural subsidies have gone to just a few big crops crops (corn, cotton, rice, wheat and soybeans), but falling transport costs and new trading relationships are now putting specialty growers under more intense competition:
Finally, it was interesting to read the way the reporter echoed the commonly repeated claim that China's farmers are "broadly subsidized" because they:
The second argument, that China is somehow "subsidizing" its garlic producers by having a large cheap rural labor force seems an abuse of language that New York Times reporters ought to have been able to avoid.
The first argument that China is subsidizing its exporters by keeping the currency undervalued is somewhat more interesting and has been the subject of considerable debate. The Central Bank of China would say that they've just been maintaining a fixed exchange rate, as do many countries around the world. But others would come back to say that China set an artificially undervalued exchange rate and has ever since then intervened heavily in the market to maintain that rate (by buying approximately $1 trillion worth of US Treasury bills). This has kept the renimbi from appreciating (same as saying has kept the dollar from depreciating) in real terms, and hence has kept Chinese exports attractively priced for US consumers. How this is advantageous to China overall is not necessarily clear, but it certainly leaves room for US producers in import-competing sectors to complain.
The US dollar has started to lose value relative to other major currencies but the renminbi remains pegged.
"In 2001 China began flooding the market with garlic, after managing to find ways around an import tariff of 377 percent. ...[now] Chinese garlic costs almost half the price of garlic that is grown domestically."
[A new] group, representing growers of everything from broccoli to strawberries to nuts and flowers and wine, has submitted a bill asking for what most likely would amount to billions of dollars for programs they say could help their crops compete better in a tougher global marketplace.Interestingly, these farmers don't want to appear to antagonize growers of the five crops that receive the bulk of the approximately $15 billion annual federal farm subsidies -- perhaps they'd be seen as competing for the same annual pool of $15billion -- and perhaps are also looking for ways to avoid setting off a WTO dispute, and so their proposal looks rather like what some of you (in 340) wrote as your industrial policy:
... Hoping to avoid a nasty battle with powerful farm-state politicians in the Midwest and Southeast, the specialty crop groups are asking instead for more money to help market their products at home and overseas, as well as for research and conservation.
Finally, it was interesting to read the way the reporter echoed the commonly repeated claim that China's farmers are "broadly subsidized" because they:
"have the advantage in that their nation’s currency, the yuan, is tightly regulated to maximize trade opportunities. And the country has a glut of workers for the labor-intensive jobs of growing and harvesting fruits and vegetables."
The second argument, that China is somehow "subsidizing" its garlic producers by having a large cheap rural labor force seems an abuse of language that New York Times reporters ought to have been able to avoid.
The first argument that China is subsidizing its exporters by keeping the currency undervalued is somewhat more interesting and has been the subject of considerable debate. The Central Bank of China would say that they've just been maintaining a fixed exchange rate, as do many countries around the world. But others would come back to say that China set an artificially undervalued exchange rate and has ever since then intervened heavily in the market to maintain that rate (by buying approximately $1 trillion worth of US Treasury bills). This has kept the renimbi from appreciating (same as saying has kept the dollar from depreciating) in real terms, and hence has kept Chinese exports attractively priced for US consumers. How this is advantageous to China overall is not necessarily clear, but it certainly leaves room for US producers in import-competing sectors to complain.
The US dollar has started to lose value relative to other major currencies but the renminbi remains pegged.
Comments
This is an issue that probably isn't as serious when you have an economy that is balanced between a domestic market and international market. China, however, has focused a majority of its growth on an export economy which means, from their point of view, that it is probably necessary to "actively" manage their currency.
As the domestic economy develops and their polcies become more balanced between trade and the domestic economy there should be a more "hands-off" approach to managment of its currency. The problem for China now is how/when to institute policies that will help it transition to a balanced approach.