I have to admit the piece I posted Tuesday on China and the World Trade Organization based on Harvard professor Dani Rodrik's column for Project Syndicate left me a bit confused. To wit: How would China subsidizing its industrial growth instead of pegging its currency to the dollar do anything to change its trade imbalance with the US?
Rodrik didn't spell that out in the piece. But he does in a fuller explanation of his ideas in another piece posted on voxeu.org today. And it turns out the answer is pretty obvious. He's talking about policies that ultimately boost domestic demand for more profitable products. What threw me is that those types of subsidies are also considered taboo by the WTO, so I naturally assumed he was talking about exports. But it turns out that's not what Rodrik was talking about at all.
Again, as he says, the fact that such policies violate WTO rules doesn'st mean they don't make economic sense in this environment. That much, at leats, was clear from the get go. Now the potential impact on the US trade deficit is as well.
Sorry, but we journalists sometimes need things more than once.