Bo Peng

Why China's Exporters Are Complaining Loudly

Mr. Pettis, I did a correlation study on USD/XYZ exchange rates and the quarterly trade balances with corresponding countries going back 7 years. I was quite surprised to find that the correlation is -0.04, meaning 0. What I realized afterwards are that

1. US economy is highly intertwined with the rest of the world. Except for a small number of products that we either import & consume or originate & export, we import the lower end of value chain and export the higher end.

2. Trade balance is the aggregate result of a huge number of factors, of which exchange rate is but one.

The popular soundbite of exchange rate driving trade balance is great for political consumption, but it's intellectually dishonest to make that automatic link without detailed analysis of the two economies (and in the global context, not just bilateral).

Chinese economy is not unlike US's on the above two points, except that import-valueadd-export portion is probably even bigger. Remember 97? Virtually all export competitors of China's had their currencies massively depreciated in a matter of months or even days. Somehow Chinese trade didn't suffer any significant or lasting impact. And the reason is very simple -- as pointed out above.

Of course there're some exporters and interest groups in China complaining. But if my analysis/guesstimate above is correct, the Chinese economy overall wouldn't be significantly impacted by CHY appreciation (within certain limit of course). By the same token, Americans who've been crying for CHY appreciation in hope of improving bilateral trade balance would be sourly disappointed and severely discredited -- as the facts over the past 1/5 yrs have already shown.

To me, it's plainly political posturing by interest groups on both sides.