But the problem for U.S. industry is not just China. The country is now experiencing high wage inflation, and I think it is at the tipping point. Inflation erodes the real value of the currency, but this is not occurring with a sufficient degree of speed to reduce China’s massive trade surpluses, particularly with the U.S. It is possible, therefore, that Washington might ultimately contemplate the type of policy that it has hitherto not dared to consider ... namely, permanent taxes on corporations that produce abroad.
Outsourcing, after all, is the creeping source of unemployment and leads to the destruction of our industrial base. One policy response might be a substantial tariff on Chinese imports if Beijing refuses to contemplate a significant revaluation of the renminbi (RMB). (The RMB has actually been weakening again in the past few months, probably due to inflation problems.) The other possibility is a permanent tax on corporations that produce abroad. Since unemployment is the cause of the extended pay benefits provided by the government, it might consider permanently taxing the source of the unemployment: U.S. corporations producing abroad.
Thursday, January 13, 2011
Marshall Auerback proposes an alternative to Tim Geithner's strong Yuan policy: