Taxing China's Assets: How to Increase US Employment Without Launching a Trade War

by Joseph E. Gagnon, Peterson Institute for International Economics
and Gary Clyde Hufbauer, Peterson Institute for International Economics

Op-ed in Foreign Affairs
April 25, 2011

© Foreign Affairs


For much of the past decade, the United States has begged, pleaded, and threatened China to change its disruptive currency practices, which artificially make Chinese exports cheap and foreign goods sold in China expensive.

Taxing Chinese assets would certainly raise hackles in China, yet Chinese leaders would have no way to retaliate in kind.

Today, in the midst of prolonged economic weakness, with the US trade deficit rising and unemployment persistently high—and Chinese-owned US debt probably exceeding $2 trillion—legislative pressure is again growing to raise trade barriers against Chinese goods. Since June 2010, China has allowed its currency, the renminbi, to rise nearly 5 percent against the dollar. But there has been no slowdown in its manipulative purchases of US assets, implying that the renminbi remains deeply undervalued.


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