DEALING WTH EXCHANGE RATE PROTECTIONISM

In this article, the author first reviews protectionist allegations against China, particularly that its currency is undervalued and is being manipulated so that the renminbi (RMB) will not appreciate. Next, she discusses China's reasons for not changing its foreign exchange policies for the time being. Finally, she assesses the U.S. position on the conditions it faces that have led it to pressure China to change those policies forthwith. In a postscript the authors mentions what China must do before planning an exit from its present exchange rate regime. Protectionism is expressed in two main forms: the traditional attack on a foreign country's trading practices, and the more recent attack on a foreign country's exchange rate policies. Both are a response to a deficit in the balance of trade with a foreign trading partner, but the first form of protectionism may be directed against a deficit in the balance of trade of a particular industry (e.g., steel or textiles).