China is exploring voluntary export restraints (VERs)

 

Context

Our past article examined and summarized Dr. Stephen Miran, Chair of the Council of Economic Advisers at the White House, and explored his thesis “A User’s Guide to Restructuring the Global Trading System.” He argues that the ongoing overvaluation of the dollar, which disrupts the equilibrium of international trade, is the root cause of the economic imbalances, the “Triffin Dilemma.”

This article discusses the possibility that China may propose a voluntary export restraint as a strategy to counterbalance the tariffs announced by the White House and how Miran could respond to this.
China’s Strategy

China is exploring voluntary export restraints (VERs)—a self-imposed limit on how much of certain goods (e.g., EVs and batteries) it exports to the US—to:


• Avoid harsher US tariffs under Trump’s trade policy.
• Preserve market access while reducing political tension.
• Charge more per unit (export fewer but higher-value goods, like Japan did in the 1980s).
• Negotiate investment concessions in return (e.g., more Chinese investment in US factories).

This is not a shift away from industrial overproduction or global trade surpluses—it’s a negotiation tactic, not a structural rebalancing.
How This Relates to Miran’s Framework

Miran’s guide focuses on US economic vulnerabilities, especially the overvalued dollar, caused in part by:


• Global demand for dollar-denominated reserve assets.
• A structural trade deficit that benefits export-heavy economies (like China).
• A lack of reciprocity in global trade damages US manufacturing.

Where China’s VER Strategy Aligns with Miran’s Analysis:


1. Acknowledgment of Export Imbalances: Miran argues that underpricing and state support maintain excessive foreign surpluses (like China’s). China’s consideration of VERs shows recognition that these imbalances are politically and economically unsustainable, at least under Trump.
2. Use of Tariffs as Leverage: Miran supports US tariffs as bargaining tools to push trade partners to accept fairer terms or rebalance trade. China’s VER move responds directly to US tariffs, validating Miran’s view that tariffs can extract real concessions.
3. Market Signaling Through Price Increases: Miran suggests the US can restore competitiveness if foreign producers raise prices or reduce market share. China’s VERs may do this by raising prices per unit, as Japan did in the 1980s, and reducing the volume saturation of US markets.

Key Differences and Contradictions with Miran’s Vision

1. China Maintains Its Industrial Model

• China isn’t restructuring away from overproduction. The VERs would be a cosmetic fix, not a correction of structural overcapacity.
• Miran advocates for a rebalanced global system in which foreign overproduction and US deficits are mutually reduced. VERs don’t achieve this—they preserve the imbalance while managing the politics.

2. No Currency Adjustment from China

• VERs do not affect currency misalignment, a core concern for Miran.
• Miran argues that the renminbi is undervalued, contributing to cheap Chinese exports and the strong dollar.
• In his view, a meaningful fix would involve currency realignment, capital account reform, or the accumulation of foreign reserves by the US, not just export quotas.

3. VERs vs. De-Dollarization Strategy

• Miran wants the US to devalue the dollar through tariffs and currency interventions to revive its manufacturing base.
• China’s move might soften short-term tensions but would not weaken the dollar or close the trade gap.
• If the US accepts VERs, the strong dollar regime will remain intact, countering Miran’s goal of recalibrating global currency relations.

Tying It Together: The Dollar Contradiction

China’s potential VER strategy exploits the contradiction Miran highlights:

• The US wants to preserve the dollar’s role as a reserve currency, which implies welcoming foreign capital and running trade deficits.
• However, it also aims to protect the domestic industry, which requires shrinking those deficits and reducing foreign competition.

China’s VERs:

• Give the US some political breathing room by reducing import volume.
• Do not address the root structural causes (e.g., strong dollar, trade deficits).
• It could be offered in exchange for maintaining the US’s open capital markets and investment-friendly environment, reinforcing the reserve dollar framework Miran sees as harmful.

So, from Miran’s perspective, VERs:


• It is a tactical win for the US in trade negotiations,
• However, it is strategically insufficient to fix the systemic imbalance driven by the reserve-dollar structure.

Our Perspective: What Would Miran Likely Say?

China’s offer of VERs is a clever but inadequate concession. It delays the necessary restructuring of the global trade and currency system. To restore industrial competitiveness, the U.S. must weaken the dollar, reduce its role as the world’s supplier of reserve assets, and rebalance trade flows through tariffs and monetary tools, not accept token export caps that preserve China’s mercantilist model.