The press is all a twitter about China’s pledge to allow the renminbi to appreciate.  That announcement came Saturday.

So what do we think of that?  Actions matter.  Not words.  Their currency is at least 40% undervalued.  China did allow appreciation from 2005 to 2007, but what did that get us?  Very little.

Why?  First, the appreciation was far too small.  Second, the government countered the impact of the currency appreciation through other means, such as greatly expanding state-controlled lending (i.e. easy/cheap/free credit) to businesses.

The danger is that the China announcement will be an excuse against U.S. action.  We need to establish an enforcement mechanism for currency manipulation.  Merely relying upon wrongdoer promises to do better is not enforcement.  We need to neutralize currency misalignment by any country by treating the practice, under U.S. trade law, as an unlawful export subsidy.  Then we can apply countervailing and antidumping duties.

If China does not manipulate, then there will be no duties.  If they do manipulate, then there will be duties.  It is in their control, but we won’t have ineffective, slow, multi-year jawboning.

Also, we need an actual trade and economic strategy.  We have none.  We need the ability, on the trade side, to more rapidly respond to foreign protectionism to protect our own interests.  So if China adjusts currency for the better, but adjusts their VAT and credit availability to overcome the currency impact, then we can respond quickly.

On the economic side, we need a plan to produce more of what we consume in the U.S.  Our biggest market opportunity is our own wealthy consumer market.  The state-managed economies are using our own free-trade-rhetoric/delusion against us, as they laugh and gain market share here.  But they only give promises of market share there… a market share that does not turn out to be real.

Obama and US Trade Rep Ron Kirk are featuring “enforcement” as their trade agenda.  Nothing else is happening.  That is better than the Bush Administration putting very high priorities on pushing the newest FTAs.  But they should enforce as to currency manipulation as well as every last item of Chinese protectionism and mercantilism detailed in 45 pages of exhaustive detail in the last annual National Trade Estimate produced by USTR.  Ditto as to the violations of other countries.

And we need a trade and economic plan.

You can support one by signing on to CPA’s Fixing America’s Economy II document here.