Krugman is angry. Here is more:
"We’re currently living in a world in which both central banks and governments are unable or unwilling to pursue sufficiently expansionary policies to eliminate mass unemployment; so it’s a paradox of thrift world, in which anyone who tries to save more reduces demand, reduces employment, and – because investment responds to excess capacity – ends up actually reducing investment. By exporting savings to the rest of the world, via an artificial current account surplus, China is making all of us poorer.
The final argument I hear about the renminbi is that it’s useless to make demands, because the Chinese will just get their backs up, refusing to bow to external pressure. The right answer is, so?
Here’s how the initial phases of a confrontation would play out – this is actually Fred Bergsten’s scenario, and I think he’s right. First, the United States declares that China is a currency manipulator, and demands that China stop its massive intervention. If China refuses, the United States imposes a countervailing duty on Chinese exports, say 25 percent. The EU quickly follows suit, arguing that if it doesn’t, China’s surplus will be diverted to Europe. I don’t know what Japan does."
1. Krugman is relying on dubious assumption that Politburo of China are afraid of a trade war because they are smarter than senators Smoot and Hawley.
2. Krugman is not at his first-best here.
"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008