There is persistent concern in the U.S. that Chinese currency policy is costing American jobs. The main argument is that jobs are lost because China's currency, the yuan, is weak-it is not worth enough as compared to the dollar, giving Chinese companies an unfair price advantage in international trade.

There is no genuine evidence to support this claim. As shown below, over the past 20 years, U.S. unemployment has been low when the yuan is weak and high when the yuan is strong. It has been so because American, not Chinese, policies determine unemployment levels. The yuan is incidental. Congressional action to punish China for its exchange rate policy, such as that now being considered, will do nothing to create jobs in the U.S.

There are Chinese actions that do harm the U.S. These same policies also harm the rest of the world. The most damaging can be grouped under the mantle of subsidies.

The current government in Beijing is utterly committed to state dominance of the economy. To ensure this outcome, it has granted various kinds of subsidies to state-owned and state-controlled enterprises, effectively blocking access to most of the market, among other problems. If China is to become a good economic partner, it must cut these subsidies back.

This is a daunting goal. The first step, however, is clear: The U.S. should identify and measure the extent of Chinese subsidies. This will strengthen the American case in multilateral discussions and any needed decisions by the World Trade Organization (WTO). It will also enable focused proposals in bilateral talks-an important change from the current situation-and a clear measurement of whether progress is being made.