Paulson’s long-anticipated journey

US Treasury Secretary Henry Paulson is in Beijing this week at the head of a mission that includes Fed Chairman Ben Bernanke.

Will these talks achieve concrete results?

I have my doubts, because I don’t think talks of this nature can “resolve” long-term structural changes in the global economy. As noted in this article in the International Herald Tribune:

Still, focusing on China as the economic bogeyman may turn out to be a politically easy but economically misbegotten strategy. Even if China allowed the yuan to float, it might not make much difference to the American trade balance.

“The United States is no longer a manufacturing economy,” Chen [Xingdong, BNP Paribas’s chief economist in Beijing] said. “They have to import the daily necessities.”

The most recent statistics from the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce, show that durable goods made up only 14 percent of the U.S. gross domestic product; adding in clothing, shoes and some other nondurable products, the total is still less than a quarter of U.S. output.

Referring to Americans, Chen said: “If they don’t import from China, they will have to import from other countries anyway. The only change is that they may not have such a good combination of quality and prices.”

Does the US really want to go back to manufacturing the kind of goods being cranked out of Chinese factories? Or, alternatively, does the US want to curb its consumption of the products being produced by those factories?

I fear that the US is currently tempted by the “pull up the ladder” response. Having reaped great advantages from global economic integration, the US wants to call its quits on the whole global economic openness thing in the face of intense competition from new developers. So the US can badger China, but it shouldn’t expect major results. The best that the US can do is focus on structural reform at home to enhance America’s ability to compete in a world where more and more countries are learning to take advantage of economic liberalization.

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