South-Western College Publishing - Economics  
Protectionist Sentiment against China Grows
Topic International Trade
Key Words Tariffs, Imports, Exports, and Protectionism
Full Article

If you have an InfoTrac or BCRC access code, click on the appropriate source to login and view the full text article.
Reference ID: A151362425

News Story In a speech made prior to a trip to Beijing, Treasury Secretary Henry M. Paluson Jr. said that Chinese leaders were imperiling their nation's future by engaging in policies that America and other countries see as unfair. The Chinese central bank continues to keep the value of its currency, the yuan, artificially low relative to the dollar, Mr. Paulson explained. The effect of this strategy is to make Chinese exports cheaper to the rest of the world, while making imports into China from its numerous trading partners more expensive for Chinese consumers. Artificially high prices for imports discourages sales of foreign goods within China.

"Maintaining and relying on an overly rigid exchange rate and outdated administrative controls increases the risk of boom and bust cycles," Mr. Paulson said. Furthermore, he added, China's "currency exchange rate is increasingly being viewed by their critics as a symbol of unfair competition." Mr. Paulson said that protectionism was preventing China from doing more to open itself up to competition, and was in turn breeding protectionist sentiment in America. He went on to say, "those nations that reform their economies and open themselves to competition benefit their citizens greatly" and "have better jobs, improved living standards and greater opportunity."

Mr. Paulson ended his talk by saying, "I believe that if China doesn't move quickly to continue reforming its economy, it will face a backlash form other economic stakeholders. This backlash would not benefit any of us."

Mr. Paulson did not explicitly refer to specific actions that the U.S. and others might take in retaliation to China's central bank actions, but aides to the Secretary said that Paulson was referring to legislation that would place tariffs on imports from China if its government did not act to let the yuan rise relative to the dollar.

Senators Charles E. Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican are sponsoring the bill that would put the tariffs in place. They are currently holding back on pushing the bill pending Mr. Paulson's trip to Beijing, but have vowed to press hard for its passage if the Secretary does not get some desired action from the Chinese.

Discussion Questions:
1. Define and discuss the notion of protectionism and discuss some of the means to enforce protectionist policies.
2. Explain the result of increased tariffs that would come about if the legislation mentioned in the article was passed.
Multiple Choice/True False Questions:
1. Keeping the value of the yuan low in relation to the dollar will make Chinese exports more expensive and imports cheaper.
  1. True
  2. False
2. Protectionism refers to government protection of domestic producers by placing restrictions on foreign competition.
  1. True
  2. False
Source Steven R. Weisman, "Paulson Says China Hurts Itself With Economic Policies", The New York Times Online, September 13, 2006.
Instructor Discussion Notes Discussion Notes
These notes are restricted to qualified instructors only. Register for free!

Return to the International Trade Index

©1998-2006  South-Western.  All Rights Reserved   webmaster  |  DISCLAIMER