Suitably Flip

Trade Deficit Narrows, Senate Angles for More

Unexpectedly good news today from the Department of Commerce [.pdf], as the U.S. trade deficit was found to have shrunk by $3 billion in February.

The trade deficit continues to loom near record highs, but then again China (accounting for the lion's share of our trade gap) continues to refuse to trade like a grown-up, playing fast and loose with intellectual property pirates, banning U.S. beef imports, and keeping their currency artificially undervalued.

China has made some preliminary overtures toward reforming these abusive trade policies in advance of President Hu Jintao's visit to the U.S. next week.  Meanwhile, two bi-partisan Senate bills (one sponsored by Chuck Grassley and Max Baucus and another, more dramatically protectionist bill introduced by Chuck Schumer and Lindsey Graham) are aimed at pressuring China to allow its currency to float freely.

A trade war with China is clearly in no one's interest, so legislators are rightfully gunshy about the Schumer-Graham bill, which would impose broad retaliatory tariffs on Chinese imports.  The Grassley-Baucus currency bill (S. 2467) on the other hand would focus on how the U.S. Treasury identifies problematic world currencies, introducing the kinder, gentler alternative of "misaligned" to the designation of "manipulated", a loaded taboo that hasn't been wielded in a decade.

This compromise between the more draconian Schumer-Graham bill and the current policy of asking nicely seems to have broad bi-partisan support and if passed, might have just sharp enough teeth to convince China to embrace free trade in earnest (most importantly by allowing the yuan's exchange rate to float unfettered), a move that would likely reverse a significant portion of our total trade deficit.

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Trade Deficit Narrows, Senate Angles for More

Unexpectedly good news today from the Department of Commerce [.pdf], as the U.S. trade deficit was found to have shrunk by $3 billion in February.

The trade deficit continues to loom near record highs, but then again China (accounting for the lion's share of our trade gap) continues to refuse to trade like a grown-up, playing fast and loose with intellectual property pirates, banning U.S. beef imports, and keeping their currency artificially undervalued.

China has made some preliminary overtures toward reforming these abusive trade policies in advance of President Hu Jintao's visit to the U.S. next week.  Meanwhile, two bi-partisan Senate bills (one sponsored by Chuck Grassley and Max Baucus and another, more dramatically protectionist bill introduced by Chuck Schumer and Lindsey Graham) are aimed at pressuring China to allow its currency to float freely.

A trade war with China is clearly in no one's interest, so legislators are rightfully gunshy about the Schumer-Graham bill, which would impose broad retaliatory tariffs on Chinese imports.  The Grassley-Baucus currency bill (S. 2467) on the other hand would focus on how the U.S. Treasury identifies problematic world currencies, introducing the kinder, gentler alternative of "misaligned" to the designation of "manipulated", a loaded taboo that hasn't been wielded in a decade.

This compromise between the more draconian Schumer-Graham bill and the current policy of asking nicely seems to have broad bi-partisan support and if passed, might have just sharp enough teeth to convince China to embrace free trade in earnest (most importantly by allowing the yuan's exchange rate to float unfettered), a move that would likely reverse a significant portion of our total trade deficit.