Daniel W. Drezner Advises the Sausage Makers--the Legislators, That Is

danieldrezner.com :: Daniel W. Drezner :: A whole-assed effort on a half-assed policy measure: A whole-assed effort on a half-assed policy measure

In response to this post blasting the Baucus-Grassley-Schumer-Graham China bill -- and the presidential candidates who endorse it -- I received the following e-mail from a Hill staffer who shall remain very, very anonymous:

Over the next few months, our committee is going to be considering trade legislation on China, including the currency issue. I've read with interest your recent blog about your concerns with the Baucus-Grassley-Schumer-Graham bill. If we accept that something needs to happen legislatively (for political, if not substantive reasons) on currency, do you have any thoughts on what a sensible piece of legislation would look like?

So, the problem is that a political imperative exists to do something, but even the staffers know that the something proposed is bad, bad, bad.

The task, therefore, is to devise a bill that is perceived as doing something about China but in point of fact does not seriously rupture either the bilateral economic relationship or the U.S. economy. A bonus if the policy were to actually achieve the desired end -- a slow appreciation of the yuan.

Faced with this assignment, and after pleading numerous times to just do nothing, I'd offer four recommendations that might make this kind of thing look sensible:

1. Give China 18 to 24 months to achieve a quantifiable degree of appreciation (no, I'm not going to provide a number) before any measures are enacted. This kicks the can down the road for a while, and with some luck Beijing will head in that direction anyway.
2. Since a tariff will result in a) higher consumer prices and b) higher interest rates if China retaliates or acquiesces, have the bill suspend any punitive action unless the inflation rate is below 4.5% and/or the Federal funds rate is below 5.5%.
3. Demand that the Treasury Department investigate sovereign wealth funds, akin to their investigations of currency manipulation.
4. Screw trying to punish China for currency manipulation and focus on consumer health and safety instead. This gets at the issue sideways, but Beijing is clearly vulnerable on this point, no matter how many ex-regulators they execute. This is also an an issue where, for reasons I've elaborated at length elsewhere, Beijing is more vulnerable.

Please excuse me so I can wash my hands until they're clean.