Is China subsidizing its exports or subsidizing US imports? In his written remarks - but not in his actual speech in Beijing - Bernanke urged China to stop subsidizing its exports via a weak RMB (see also Brad Setser's comments on Bernanke's speech). He could have as well said that China is subsidizing US imports of Chinese goods, thus keeping Wal-Mart prices and US inflation lower than otherwise. Of course, from an economic point of view subsidizing exports is equivalent to subsidizing imports. But  - from a political economy of protectionism perspective - speaking of export subsidies is putting the blame on "unfair" Chinese policies rather than recognizing, as the term "import subsidy" would have conveyed, that this Chinese currency policy is highly beneficial to US consumers and that it is keeping US inflation lower than otherwise.

Also speaking of "export subsidies" in the context of currency policy is loaded and dangerous: export subsidies are illegal within the WTO rules. And arguing that a weak currency is effectively an export "subsidy" could even give legal cover to those in the US who may pursue protectionist legal action against China because of its alleged export "subsidies". This is not an idle threat: when I was at the White House's CEA in the late 1990s we had to fight non-stop bone-headed protectionist proposals by the Dept. of Commerce that was proposing to change US "dumping" rules to include low import prices due to the weakening currency values of some of our trading partners (for example the Asian currencies in crisis).

Arguing that a weak RMB is formally an "export" subsidy is - at least politically - as loaded and dangerous an argument as arguing that a weak currency implies dumping. Bernanke's use of the term "subsidy" in his written speech and of the less inflammatory term "distortion" in his verbal remarks only partially fudged the fact that speaking of "subsidies" in the context of exchange rate policies is a dangerous and risky idea: if countries were to slap tariffs against imports any time a foreign currency sharply weakens based on the argument that this is a "subsidy" and unfair trade pratice we would have trade wars galore all the time.