Now, it's Monday morning, I'm back in St. Louis, and Paul Krugman is at it again. He discusses the recent marine dispute between Japan and China, then gets to the meat of the matter:
Major economic powers, realizing that they have an important stake in the international system, are normally very hesitant about resorting to economic warfare, even in the face of severe provocation — witness the way U.S. policy makers have agonized and temporized over what to do about China’s grossly protectionist exchange-rate policy. China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear — if denied — violation of international trade law.Note that Krugman is careful here to use the term "economic warfare." However, it's hard to draw the line between economic warfare and actual guns-and-bullets warfare. The United States, being a "major economic power" has hardly been hesitant in the past to use force to further its own economic interests. One could view the Cold War as a fight by the US to curtail the economic power of the USSR, which threatened the economic power of the US. The United States continues to bully Cuba with an economic embargo, in spite of the fact that Cold War issues were resolved long ago. United States incursions into the Middle East in an attempt to secure oil supplies are of course well-known. You can ask the Canadians about "economic warfare" with the United States. In spite of NAFTA, the US periodically picks a fight with Canada over some trade issue - lumber, for example. One rarely hears about these issues in the US media, but Canadians are well-aware of them.
Finally, Krugman summarizes as follows:
Couple the rare earth story with China’s behavior on other fronts — the state subsidies that help firms gain key contracts, the pressure on foreign companies to move production to China and, above all, that exchange-rate policy — and what you have is a portrait of a rogue economic superpower, unwilling to play by the rules. And the question is what the rest of us are going to do about it.Here we have the pot calling the kettle black again. I'm sure the United States has never subsidized a domestic producer or encouraged a foreign company to locate here - in your dreams. While I'm sure many Americans want to view the United States as representing the forces of good in the world, there are many instances in modern history when the US has been seen in the rest of the world as the rogue economic superpower that sets the rules. The rules that Krugman wants China to play by are US rules, set up to serve US interests.
As I have argued elsewhere (here and here) the attempt to force China into intervening to cause its currency to appreciate is misguided. I'm not sure what Krugman has in mind in the last sentence of his piece (above), but I think that the United States has to become accustomed to the idea that its relative power (and possibly absolute power as well) is waning. Even if China is ultimately a bully, the US has to live with it. But, take heart. Through its entire existence, Canada has lived next door to a bully, and it seems to do fine.