Thursday, September 29, 2011

Fred Bergsten on Net Exports

In today's NY Times, Fred says government policy should focus more on increasing net exports.  He says a lot of wise things, especially regarding the need for better intellectual property protection abroad.  One part of the article, however, puzzles me.  He writes:

The artificially low value of the renminbi — it is 20 to 30 percent less than what it should be — amounts to a subsidy on Chinese exports and a tariff on imports from the United States and other countries.

Think about this for a moment.  As I discussed in this old Times column, the way China affects the exchange rate is by buying dollars in foreign exchange markets and using them to buy dollar-denominated assets (such as Treasury bonds).  Yet the exact same mechanism is at work whenever any foreigner invests in the United States.  All capital flows into the US raise the value of the dollar in foreign exchange markets and make our exports less competitive.  Does Fred object to all capital flows into the US?  Would he prefer some degree of capital flight from the US because it would lower the value of the dollar and promote exports?  That seems to be the logical implication of what he is saying, but I doubt that's what he intends to suggest.  So I am puzzled.