Roach Rebuffs Krugman Call to Pressure China on Yuan (Update1)

By Christopher Anstey and Susan Li

March 19 (Bloomberg) -- Morgan Stanley Asia Chairman Stephen Roach said a “baseball bat” should be taken to economist Paul Krugman over his call for the U.S. to pressure China into allowing the yuan to appreciate.

“I think we should take out the baseball bat on Paul Krugman -- I mean I think that the advice is completely wrong,” Roach said in an interview on Bloomberg Television in Beijing when asked to comment on Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which should be to boost U.S. savings rates, Roach said.

The debate between the two economists echoes verbal clashes between officials, with Chinese leaders repeatedly saying that their yuan policy isn’t the cause of the U.S. trade gap. American lawmakers have urged the Obama administration to step up pressure on China for keeping its exchange rate unchanged, a stance criticized as providing its exporters an unfair advantage.

“I’m a little surprised at Steve for saying that,” Krugman, the Princeton University professor and Nobel laureate in economics, said in a telephone interview when asked to respond to Roach. “What I said is actually based on pretty careful economic analysis. We have a world economy which is depressed by China artificially keeping its currency undervalued. China is adding to the problems of the rest of world -- end of story.”

Import Restrictions

Krugman said last week the U.S. may need to get more aggressive in its negotiations with China, perhaps by treating the exchange-rate issue as a countervailing duty or other export subsidy.

“I’m a little curious what Steve thinks would happen if the U.S. increased savings” without a stronger yuan, Krugman said today. “Where would the demand” for goods and services come from, he asked. Boosting savings should be done “in the long run,” not now, he also said.

Krugman is “giving Washington very bad advice,” Roach said in a later interview when asked to respond to Krugman’s reaction to his remarks. “I totally reject the idea that savings is bad.”

Roach added that while Krugman and he have been in agreement for years, they are in total disagreement right now.

To contact the reporter on this story: Chris Anstey at canstey@bloomberg.net

Last Updated: March 18, 2010 20:11 EDT