China is the number one growing economy in the world. Everyone expects China to become the next economic super power. China will definitely surpass any western country in a foreseeable future. And that is the root of the problem. No country will have the courage to call China out on manipulating currency because they risk having bad trade relationships with China. Having a trade-war with China is economic suicide. Especially with the current state of the European and United States Economies the chances are no one thinks it is worth it.
There have been many pleads by the United States Congress for China to let the yuan grow as it naturally would. However the Chinese policy say that the yuan is going to reach its "equilibrium point soon." Even with these statements, many economists know that China's bank controls the fluctuation of the yuan and decides when to increase the value.
China's economic manipulation might seem faraway from all of us, but it really is much closer. Because of manipulation, big businesses will continue to see it favorable to outsource jobs to China. American companies who make their goods here will fail, as they cannot compete with the cheaper prices. I love my cheap goods. I am not going to lie on that part, but to help our economy, maybe it's time for someone to call out China on what they are doing.
4 comments:
I don't think calling China on what they are doing will help. Though I wish that this manipulation will stop, I don't think it would. As Bruce already said, the U.S. Congress has already asked China to let the yuan grow naturally and it was ignored. If we keep asking China to stop the manipulation, it may cause tensions to grow between the countries, which would ultimately be bad for the U.S.'s already bad economy.
In regards to outsourcing, I think the U.S. should create incentives for American businesses to remain and manufacture in the United States. It would both create new jobs, which would help our economy, and stop giving China incentives to continue manipulating the currency. Though this may make products more expensive, I believe it would overall help the economy and help stop the currency manipulation.
China is able to manipulate currency by printing plenty of new currency while also buying US government debt which "artificially" holds the value of the Chinese yuan down and creates demand for the US dollar. This makes it cheaper to manufacture in China and (the part that is good for the US) Chinese-made goods are cheaper when they arrive in the US. Every country manipulates the value of its currency by either printing or not printing its currency. However, China manipulates considerably more than most countries and makes it harder to create jobs in the US. China has its own looming domestic problems though, and as workers demand higher wages and more benefits, China will become slightly less competitive in the global market.
http://www.slate.com/articles/news_and_politics/explainer/2012/10/china_currency_manipulation_how_does_it_harm_the_u_s_and_what_can_we_do.html
In my opinion, threatening to label China as a currency manipulator was empty rhetoric made by a desperate politician trying to support a seemingly popular position to gain a few votes. As Anthony pointed out, literally all countries that print currency are technically "manipulating their currency." While this label was intended to brand China as an especially careless "manipulator," the actual label holds no power. Yes, it is the first step on a path to setting up tariffs on good we import from China, but is that a path we really want to head down? A trade war with China sounds like bad business if you ask me.
It's also important to note that China isn't the only one manipulating their currency (to an extent that warrants concern). This blog post points out that there are many other countries that are more deserving of this meaningless label than China. While outsourcing is certainly a major concern, this line of thinking definitely isn't going to lead to any solutions.
The question of labeling China a currency manipulator is an interesting one, but I do agree with Andrew. Consider that the United States opted not to label China as such (http://www.bbc.co.uk/news/business-20518490).
More to the point, though, I'm interested to see how the social and political dynamics within China will force the authoritarian regime to evolve. From the political end, we're seeing new leadership come into play. And in a social dimension, this WSJ article is a bit dated (http://online.wsj.com/article/SB10001424052748703560404576188981829658442.html) but makes a very astute point with regard to the changes that we might expect to see in the years to come. Look at the rise in major protests within China, and put that into the perspective of the Arab Spring. Not quite the same circumstances, mainly because you have a infrastructure keeping a core slice of the population happy (happy enough to the point that they might be averse to the demands of redistribution potentially brought on by instituting a multi-party democracy). China's middle class is already big and it will only get bigger, but inequality is a major, major issue. Couple that with the fact that consumption, not investment, accounted for a majority of China's growth in the last years (http://www.economist.com/blogs/freeexchange/2012/10/rebalancing-china), and we're left with a lot of spicy questions.
How will American foreign policy have to change? Maintaining trade relations aside, it seems like the United States is still at the point of making adjustments to China's growing geopolitical dominance in East. Undoubtedly the U.S. navy and air force have to stretch to safeguard U.S. agenda; China does sort of have the home field advantage...
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