Nobel Prize winners Joseph Stiglitz and Robert Mundell agree that a China currency appreciation would not be helpful to either China or the US. Here are the key points:
The United States blames foreign countries for its trade deficits:
- In the 1980s, the US blamed Japan for its massive trade deficit.
- Today, China is blamed.
America's real problem:
- The root of America's economic problem results from the imbalance between savings and investment.
Will a China currency appreciation fix the imbalance?
- According to both economists, the answer is NO.
- According to Stiglitz: "A 3% change on the foreign exchange rate does not have a significant effect" on the US trade deficit with China".
- Factories are not going to move production to the United States because of the change.
- The problems of outsourcing, manufacturing, and China's global advantage would not be affected by a moderate change in the foreign exchange rate.
What would a China currency appreciation do to the Chinese economy?
- It would have an adverse effect on Chinese farmers.
- It would also negatively effect China's bid to narrow the rural-urban income gap.
- It could undo some of the progress China has made in reducing poverty in rural areas.
According to Stiglitz, China would benefit in one way from a currency appreciation:
- "A revaluation of the Yuan would get political pressure off the back of China for a couple of months".