Letter to the Editor

Robert J. Samuelson's May 4 op-ed column, "A Trade Tightrope With China," repeated common misunderstandings about China's currency and economy that increase the risks of protectionism.

Instead of its trade surplus with the United States, economists agree, China's global surplus is a better test of its exchange-rate fairness. An unfairly cheap currency would result in a large global surplus. China's surplus with America is a quarter of the U.S. trade deficit, but the most widely accepted statistics show that China's global surplus accounts for only 8 percent of that deficit. Global surpluses from Japan, Germany and indeed the whole euro currency area account for more than 40 percent of the U.S. deficit. Including oil-exporting nations and the rest of Asia except China raises the combined global surplus to more than 75 percent of the U.S. deficit.

China can have a surplus with the United States while its global surplus is so small because of its large trade deficit with its neighbors. In recent years these neighbors have rerouted their exports to the United States through China for final assembly. Exports from the rest of Asia to the United States declined from 2000 to 2004 as reexports through China grew. China's much smaller global surplus indicates its exchange rate does not provide unfair advantage in trade.

A shift in China's exchange rate also is unlikely to alter the export-led growth strategies of the rest of Asia, which reflect not competition with China but their failure to stimulate domestic demand.

Neglecting to note these global and regional dimensions contributes to misguided protectionist threats against China.  

Albert Keidel, Senior Associate, Carnegie Endowment for International Peace