The Magazine

Worry About OPEC, Not China

If a stronger dollar is what you want.

Dec 25, 2006, Vol. 12, No. 15 • By IRWIN M. STELZER
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Paulson is clever enough to distinguish the practically attainable from a political wish list, which is why he put the word out that his trip was designed to open a two-year "Strategic Economic Dialogue" with China, not to produce a floating yuan. The Chinese are well aware that their mercantilist policy of accumulating foreign currency creates problems for them, and that their standard of living would be better if domestic demand grew so as to reduce their need to export. Wu Yi--after a diatribe about past grievances, starting with the opium wars (a traditional Chinese opening gambit beautifully described by Margaret MacMillan in her new book Nixon and Mao: The Week That Changed the World)--said that the regime is in the long run seeking a "rough balance" between imports and exports. But the Chinese authorities can't figure out how to get from here to there--how to achieve that goal without creating huge unemployment during the transition from an export-led to a more balanced economy.

Paulson hopes to change the conversation from a shouting match over the undervalued yuan to a "dialogue" ranging over joint interests in increasing world oil output, reducing the environmental degradation incident to China's inadequately green policies, improving labor standards in Chinese factories, protecting intellectual property rights, and opening markets to U.S. imports. Apparently unaware that previous "road maps" drawn up by the administration have not led anywhere, Commerce secretary Carlos Gutierrez called for still another "road map," this one to direct China to a more market-oriented economic model. If that's the destination China's rulers have in mind, Paulson is the man to help them find the way. Of course, they knew that before he and his entourage came calling last week on a mission designed more to quiet protectionist Democrats than to have a real impact on America's trade deficit.

Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).