The Shadow of Protectionism Still Lurks in 2012

The Shadow of Protectionism Still Lurks in 2012

Europe's unresolved debt crisis has been the major problem facing the global economy of late. Beyond taking center stage for economic policymakers, Europe's problems led investors to seek refuge in the safe haven of U.S. debt, dubiously anointed the “least dirty shirt” of the global economic landscape. As investors pulled out of faster-growing economies, the capital flight drove down the value of those countries’ currencies, many of which had been bid up at the beginning of 2011.

While the problem of overvalued currencies may have receded over the summer, the underlying issue of currency manipulation still threatens the global economy. A decade after it joined the World Trade Organization, China is perceived to be the main culprit, artificially keeping its yuan at a level that makes its exports cheaper on the world market, thereby hurting producers in other countries.

For example, if the yuan increased to the level that most economists consider fair value, increased demand for U.S. manufactures would create 900,000 jobs in America.

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