Chinese Currency Opinions
There is some interesting commentary on the Chinese currency question in the Wall Street Journal today. I have written about this subject a couple of times before (see China Foreign Account Surplus, China Causing Housing Bubble?, Chinese Currency Undervalued, or China – Currency Manipulator?), so there is not too much new to say on the subject, but I do think it is a more complicated subject than either side typically represented in the media admits. In fact, the “manipulation” of China’s currency has some significant benefits, as well as some drawbacks (as described before). I personally believe that the US gets a lot of good out of China’s manipulation of its own currency, but there are clearly those who agree, as well as those who disagree. From the WSJ today:
1. It is clear that Sens. Charles E. Schumer and Lindsey O. Graham do not understand the rules that they accuse the Chinese of breaking. In their Sept. 25 editorial-page commentary “Play by the Rules,” they refer to America’s exploding trade deficit. This is only one component of the trade relationship between China and the U.S. They conveniently choose to ignore the benefits Americans enjoy from another component, the financial account surplus, courtesy of the Chinese. By purchasing our debt, the Chinese have kept interest rates low, allowing our citizens and government to borrow at extremely low levels. (Robert A. Monaghan)
2. If voter worries are behind their motives for pressing China, then the two should also realize the following about their other constituents: There are far more voters who enjoy the value they get from purchasing less expensive goods shipped from China; that net imports are exactly offset by net capital inflows and that all American voters benefit from this infusion of capital in the U.S., particularly the folks who work in the financial industry in New York City; and that voters who work at the shipping ports in Charleston, S.C. (as well as other voters in the supply chain) would probably not welcome the adverse effects of a tariff on Chinese goods. But if it’s just a fear-based emotion of the Chinese that is causing this protectionist zeal, perhaps the senators should really consider that the Chinese consumer is also suffering because of the manipulation of their central bankers. There are no free lunches. (Joe Mann)
3. Sens. Schumer and Graham correctly conclude that a free-floating yuan is mutually beneficial to the U.S. and China, but their decision to impose a tariff on Chinese imports I believe is dangerous. It is important that America seek solutions to narrow the current trade deficit, but how are we to convince other countries to pull down barriers to trade as we are erecting them? It is also important that we work with the Chinese and not against them. America’s relationship with China over the past few years has not been as smooth as one would hope. (Tyler Sprecker)
