Friday, April 20, 2007

New York Times Wrong About Chinese-U.S. Dependence

The New York Times has a story about how Chinese dependence on U.S. have supposedly decline in recent years. As evidence, they use the fact that America's share of Chinese exports have declined. The fallacy here should be apparent. While it is true that the U.S. now receives a smaller share of total Chinese exports, Chinese exports relative to Chinese GDP have increased even more. This in turn means that Chinese exports to the U.S. relative to Chinese GDP have done up, not down. And this is of course what matters in terms of the dependence of the Chinese economy of exports to the U.S.

The simplest and least painful way for the Chinese government to reduce this dependence would be the same policy move that would most effectively reduce excessive money supply growth: i.e. allow the yuan to appreciate faster.


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