Everybody from Lou Dobbs to Paul Krugman is beating up on China. China, we are told, is cheating. It is cheating by making it harder for western companies to invest there and for stealing their technology when they do. It is cheating by directing cheap credit to favoured industries. It is cheating by allowing companies that operate in China to pay their workers less and pollute more. Above all, it is cheating by manipulating its currency, suppressing the value of the renminbi to make its exports super-competitive.
One possible response to this line of argument is: why shouldn’t China cheat? After all, everybody else did.
Britain’s mercantilist growth model dates back to Henry VII who, during his childhood in Burgundy, noticed that the region had become wealthy by making textiles with wool imported from England. His observation, or so the story goes, was a catalyst for what became an elaborate system of protectionism. London imposed duties on wool leaving the country and granted tax relief and temporary monopolies to domestic woollen manufacturers.