I am having a Dean Baker moment, although I suspect Baker will have even more fun with the front page New York Times article bearing the headline above.
This is how the story starts:
China’s latest export is inflation. After falling for years, prices of Chinese goods sold in the United States have risen for the last eight months.
Soaring energy and raw material costs, a falling dollar and new business rules here are forcing Chinese factories to increase the prices of their exports, according to analysts and Western companies doing business here.
The rise was a modest 2.4 percent over the last year. But even that small amount, combined with higher energy and food costs that also reflect China’s growing demands on global resources, contributed to a rise in inflation in the United States. Inflation in the United States was 4.1 percent in 2007, up from 2.5 percent in 2006.
The article also notes, “Some of the current cost pressures are actually by design — Beijing’s design,” and cites measures like elimination of export subsidies and tax rebates, measures sought by the US.
The article fails to mention the single biggest cause of China’s roaring inflation: massive monetary stimulus caused by large, continuing purchases of dollars to fund our current account deficit. In effect, the US has been exporting inflation, and it is finally coming around to haunt us as the dollar depreciates and domestic inflation in our trading partners rises to the point that it shows up in export price increases. But not a word of the role that the funding of our consumption habit plays, at least in the New York Times.
Anonymous 
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Yves, I think you’re exactly wrong on this one. The purchases of dollars aren’t a monetary stimulus — how can buying Treasury bonds increase the Chinese money supply? Quite the opposite: they’re an attempt to sterilize all those dollar inflows, and *prevent* inflation. If China allowed its exporters to simply spend all the dollars they’re earning, *that* would be inflationary.