Strategist Says Further China Currency Re-Valuation Will Hurt American Companies

Bank of America Chief Market Strategist Joseph Quinlan believes that Washington should not be pushing for further re-valuation of the Chinese Yuan. Since the Chinese government removed the dollar peg in July there has been little movement in the Yuan. Congress is now calling for a further adjustment in hopes of helping American companies become more competitive. Why does Quinlan disagree with Washington's sentiment? Here is a short extract from an article in Barron's (subscription required):

We disagree with this logic and have been at pains to remind folks that a stronger currency—by forcing the pace of industry consolidation, holding down inflation, and encouraging more foreign direct investment, to name a few reasons—usually makes an economy stronger, not weaker.

Think of Japan, which was hounded by Washington in the 1970s and 1980s to revalue the yen. Japan ultimately yielded, resulting, incidentally, in a stronger manufacturing export base rather than a weaker one. Just ask Detroit. Many in Washington, against this backdrop, should be careful of what they wish for. More importantly, those pushing for further revaluation should recognize that the wage gap between China and the rest of the world is so large at the moment that even a 15% to 25% appreciation of the renminbi, the level demanded on Capitol Hill, wouldn't do much to alter the competitive playing field of the Middle Kingdom.