Dani Rodrik expounds the virtues and pitfalls of the Chinese exchange rate manipulation. For a change, he does not focus on US-Chinese economics, but on the impact of the undervalued Yuan on poor countries.
a) use the large open economy diagram to show how a one time reduction in the exchange rate affects China and poor countries
b) explain why the artificially weak Yuan is equivalent to Mercantilism (see page 630) and explain the exact dynamics.
Cartoonist E.W. Clay published this 1831 cartoon lampooning the "American System" as the Monkey System with this caption "Every one for himself at the expense of his neighbor!" (Source) Senator Henry Clay of Kentucky is considered the architect of the
“American System,” the first US government-sponsored attempt to invigorate
the national economy. The
Systemn included:
- the regimenting of high tariffs to protect fledgling American industries
- federally supporting 'internal improvements’ in transportation
- the creation of a strong banking system that would make loans available for businessmen
The system was an attempt to bring Alexander Hamilton’s proposals
to fruition, as outlined in his 1792 “Report on Manufacturers.” As proposed under the American System, a protective tariff of 20 to
25 percent on imported goods—such as woolens, cottons, leather, fur,
hats, paper, sugar and candy—would protect the nation’s fledgling
industries from foreign competition. Congress passed a tariff in 1816
that increased the price of European goods, which encouraged consumers
to buy less expensive American-made goods. (Here is also the Wiki brief on Mercantilism).
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