Wednesday Quick Hits

Lots of interesting reading over the last few days, so let's spare the pleasantries:

• If you want to know how China's efforts to control the nominal RMB-USD exchange rate lead to serious inflation (and thus an increase in the real exchange rate) read this.  (And then ask yourself this: "Hmm, is this really indicative of a sound economy that will inevitably overtake the United States in the very near future?")  AEI's John Makin has more good data on China's inflation problem here, although I think his solution is a tad simplistic.

• In a great NYT op-ed Harvard's Mark Wu provides three indisputable reasons why China's currency policies aren't the problem for the United States that many, like Sen. Chuck Schumer, breathlessly claim.  My favorite part: "I recently did an analysis of the top American exports to our 20 leading foreign markets, and found little evidence that an undervalued Chinese currency hurts American exports to third countries. This is mostly because there is little head-to-head competition between America and China. In less than 15 percent of top export products — for example, network routers and solar panels — are American and Chinese corporations competing directly against one another. By and large, we are going after entirely different product markets; we market things like airplanes and pharmaceuticals while China sells electronics and textiles."  Cato's Dan Griswold also pens a nice summary on the same issue, and NRO's Rich Lowry broadens the view a little.  [UPDATE: Fresh from Worldtradelaw.net's indispensable trade headlines comes a new CNN report on a debate between Fred Bergsten and Jim Chanos on whether the yuan is undervalued or overvalued.]

• Meanwhile, China's selling US Treasurys again.

• HotAir's Jazz Shaw provides an excellent example in the Ecuador-Chevron kerfuffle of why trade agreements' investor-state protections - such as the mandatory resort to third-party dispute settlement - aren't (as many misguided trade critics claim) pernicious and instead encourage foreign investment (and thus economic growth and, of course, jobs).

• At the request of the Chinese government, "China's five largest banks have pledged to lend more to government-subsidized housing projects in 2011."  What could go wrong?  Oh, right, that.

• Green trade disputes are suddenly a hot topic!  First, Sen. McCain tells Brazilians that US ethanol policies are ripe for a WTO challenge.  Then, Reuters wonders if a "solar trade war" is on the horizon because so many governments are subsidizing the heck out of their solar industries.  Finally, former WTO Appellate Body chair James Bacchus proposes that the US and China negotiate a pre-emptive ceasefire on gree trade disputes in order to avoid a serious conflagration.  If only someone had been warning us about all of these problems for, oh I don't know, the past 20 months or so.  If only....

• The Economist provides our super-cool graphic of the day, which shows that the key to cleaner energy consumption is economic development, not top-down government control.  Shocking, I know:

• The Seattle Times' Bruce Ramsey provides an excellent Korean history lesson which shows that Korean opposition to KORUS and other FTAs is pretty silly.

• Doug Holtz-Eakin, James Capretta and Joseph Antos write a must-read op-ed systematically debunking the liberal/Democrat talking point that repeal of ObamaCare will increase the US budget deficit.

• Finally, this is hilarious, and so is this.

Enjoy!

Carbon Tariffs Update: India Talks Even Tougher; White House Doesn't Care

Bridges weekly reports that India is not playing around on carbon tariffs:

India will bring a WTO challenge against any “carbon taxes” that rich countries impose on Indian imports, Indian Environment Minister Jairam Ramesh said this week.

“If they impose such a tax, we will take them to the WTO dispute settlement forum,” the minister told The Hindu Business Line, an Indian daily newspaper. “We will deal [with this] through hard negotiations. Such barriers are not going to be WTO-compatible and we will fight it.”

No such measures have been implemented, but politicians in both the United States and the European Union have discussed the possibility of imposing tariffs or other forms of “border carbon adjustment” on goods imported from countries with laxer regulations on greenhouse gas emissions. Buzz around the idea - widely known as a “carbon tax” - has grown since December’s climate conference in Copenhagen failed to produce a global deal to reduce emissions of heat-trapping gases. Proponents say that the measures could help level the playing field for firms and industries based in countries with strict climate regulations.

A form of border carbon adjustment was written into the climate legislation passed by the US House of Representatives last summer. US President Barack Obama criticised the measures, warning of the dangers of “sending any protectionist signals” amid the economic downturn. The Senate has yet to vote on its version of the bill.

European heads of state reportedly remain divided over whether the 27-nation bloc should impose a carbon tax at EU borders. At a recent summit of European leaders, Austrian Cancellor Werner Faymann argued that “it wouldn’t be a good negotiating tactic,” Agence-France Presse reported. But French President Nicolas Sarkozy is an ardent supporter of the measures. Sarkozy told journalists last week that European Commission President Jose Manual Barroso will put forward a proposal for a European carbon border tax in June.

But many in Europe remain unconvinced. Speaking to journalists earlier this month, Connie Hedegaard, the European Commissioner for Climate Action, cautioned against the unilateral measures. If we trust other countries’ pledges to take action to limit climate change, then “it should not be the time to say, OK, but we just give you a carbon tax. Why not now make an effort to try to conclude the international deal?” Hedegaard said, according to a report from Dow Jones.

Now, I've discussed the Indians' very serious efforts and strong words on carbon tariffs over the last few months, as well as my thoughts that the EU's carbon tariff ambitions appear dead for now (despite the glimmer of "optimism" that Bridges reports above). 

The United States, however, is worth keeping an eye on in the coming months.  And that's a bit of a surprise.

As mentioned last week, a bi-partisan group of US Senators is planning to unveil in the next few weeks new climate change legislation that will include, among other things, carbon tariffs.  I said at that time that the legislation's chances of passage this year were nil, but President Obama's big announcement today that he's going to (eventually) open a few areas of US coastline to offshore oil and gas exploration raises those odds from 1,000,000:1 to, say 1,000:1 because it indicates that (i) the White House is going to put a lot of effort into moving climate change legislation this year; and (ii) they're going to "reach across the aisle" - or at least try to appear like they are - in an attempt to score a few GOP votes (paging Olympia Snowe!).  I still think that the new "bi-partisan" legislation, with its controversial carbon tariff provisions, isn't going anywhere in this year, given the absolute drubbing that Democrats are already facing in the mid-term elections, but hey, in politics you never, ever know for sure.

So stay tuned, folks.