China Is Exporting Unemployment | Michael Pettis on Global Trade Imbalances, American Capital Controls, and the End of The Chinese Growth Miracle
Forward Guidance
Exploring Policy Options for Industrial Trade Imbalances
The U.S. currently faces challenges in its industrial policy, largely dictated by the actions of other nations. Notably, the perception that the U.S. operates without an industrial policy overlooks the reality that it is influenced by other countries' policies, such as Japan's subsidized exports and weak currency. Policymakers have three distinct options to address this issue. The first option, maintaining the status quo of free trade, risks further decline in U.S. manufacturing as foreign policies distort the domestic economy without any proactive measures. The second option involves supporting specific industries deemed strategically important, like electric vehicles; however, this approach may not effectively counteract the ongoing trade deficits driven by a capital account surplus. Although certain sectors may flourish, the broader manufacturing base may still decline. The third and more assertive option is to restrict capital inflows, similar to policies in countries like China, thereby regaining control over both the capital and trade accounts. Implementing a tax on foreign capital inflows could balance the capital account, subsequently stabilizing the current account and shifting the economic focus toward domestic factors, reducing dependence on global influences.
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