Should We Care If China Is Manipulating the Yuan? 15 comments
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According to Treasury Secretary Timothy Geithner (in his testimony before the Senate Finance Committee):
President Obama - backed by the onclusions of a broad range of economists - believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices. While in the U.S. Senate he cosponsored tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles. The question is how and when to broach the subject in order to do more good than harm.
Q1: Why does everybody complain that China "manipulates" its currency, but nobody complains that Hong Kong "manipulates" its currency, even though Hong Kong has used a currency board to fix the Hong Kong dollar at the same level for the last 25 years (see chart above)?
Q2: Is it fair to accuse China of "manipulating" its currency when the yuan has depreciated by -17% since 2005 (see chart above)?
Q3: If China is "manipulating" its currency, the manipulation is to keep the dollar artificially high. Why should we complain about a strong dollar, when that translates into lower dollar prices for American consumers and businesses buying Chinese products? What if China sent us its goods for free, as a form of foreign aid? That would be even better than an artificially strong dollar, but an artificially high dollar and "everyday low prices" for China's products aren't so bad.
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A2. The Chinese yuan has appreciated since 2005, not depreciated. Take a better look at your own chart.
A3. Silly argument.
Just like debt which got us into this crisis. Debt is good in principle because you use other people's money [leverage] for profit, consumption. Beyond a point, the user of excessive credit goes poof and bankrupt.
Someone wise says a unsustainable trend will not be sustained.
the dollar has lost value against the yuan...not gained value. a declining dollar (and appreciating yuan) makes imported chinese goods more expensive in the u.s....not cheaper. conversely, it renders u.s. exports to china cheaper when paid for using their appreciated currency.
the fact that china's currency has gained significant value against the dollar but they still run huge trade surpluses with the u.s. suggests to geitner that their currency should be stronger still. that's what the u.s. is complaining about. geitner believes the chinese are keeping their currency weak in order to goose their exports, which is reflected in the huge u.s. trade deficit with china. he wants to reduce that deficit, which a stronger yuan will help achieve because it will spur our exports and reduce our imports of chinese goods...or so the theory goes.
china is pissed because their currency has already appreciated substantially and they feel they're being used as a scapegoat for u.s. economic problems.
every secretary of the treasury i've ever seen has adopted the notion that debasing our currency would be the cure all for our trade and balance of payments problems. it hasn't been. it never will be.
the dollar in the last 3 months has powerfully strengthened against all currencies except the yen. yet the chinese have held the RMB steady.
of course, this kind of argument will continue until the RMB becomes a free traded currency.
When we have thousands of government workers on the payroll analyzing price and currency information and tweaking the supply and value of the USD for our own economic self-interest, we call it managing our currency, but when the Chinese (or Japanese) pursue currency policies in their self-interest, we call it unfair manipulation.
No, you can't build a cost-competitive mp3 player or even a plastic bowl in the US, but that's because US workers won't work for the equivalent of 50 cents an hour (in dollars or yuan). Chinese workers will. You could pay them in US dollars and they would still work for that equivalent amount. The fact that we don't have $20/hour factory jobs building mp3 players or plastic bowls is a consequence of open markets. It is not a consequence of some sort of sinister Asian plot to put Americans out of work.
Maybe if we quit making excuses we could address the real questions, such as (a) is the American quality of life sustainable in a tariff-free world, and (b) what competitive advantages does our country have that allows us to create value in the international marketplace? Dumb excuses about currency manipulation get us nowhere.
On Jan 27 03:26 AM icandoitdon wrote:
> i think you need a bit of help on this one dr. perry.
>
> the dollar has lost value against the yuan...not gained value. a
> declining dollar (and appreciating yuan) makes imported chinese goods
> more expensive in the u.s....not cheaper. conversely, it renders
> u.s. exports to china cheaper when paid for using their appreciated
> currency.
>
> the fact that china's currency has gained significant value against
> the dollar but they still run huge trade surpluses with the u.s.
> suggests to geitner that their currency should be stronger still.
> that's what the u.s. is complaining about. geitner believes the
> chinese are keeping their currency weak in order to goose their exports,
> which is reflected in the huge u.s. trade deficit with china. he
> wants to reduce that deficit, which a stronger yuan will help achieve
> because it will spur our exports and reduce our imports of chinese
> goods...or so the theory goes.
>
> china is pissed because their currency has already appreciated substantially
> and they feel they're being used as a scapegoat for u.s. economic
> problems.
>
> every secretary of the treasury i've ever seen has adopted the notion
> that debasing our currency would be the cure all for our trade and
> balance of payments problems. it hasn't been. it never will be.
>
>
>
>
On Jan 27 11:00 AM athena wrote:
> Treasury debasing the currency is not their cure, it is their excuse.
>
I don't think we're ready (yet) for the real answers to your questions.
Living wages are one thing, but loading the larder all the time with useless government spending, mandates and regulations are another. You can't have both, so we're destined to end up (eventually) with neither.
Josef Schumpeter said, "Profit is a Penalty." I believe we're finally going to learn the meaning of those words this time around.
As Paul Wolfowitz once said, "the nation-state is dead." That right there was enough to convince me the "neo-cons" were anything but conservative, and NOT working for the people.