On Monday, I taped a segment with FOX Business discussing China currency and the potential effects of the currency legislation that passed the House of Representatives last week.
The clip is short, but I've made the points raised therein many, many times on this blog. The legal stuff that reporter Rich Edson mentions is handled here, and the economics are pretty straightforward: revaluation could very well hurt, rather than help, the US economy because--
(i) since very few Chinese imports are directly competitive with stuff made in the United States, a significant appreciation in the yuan won't help many US companies and will lead to higher prices in the US; and
(ii) almost half of all Chinese imports are capital goods and equipment used by American manufacturers to stay globally competitive, so higher priced Chinese goods would hurt many manufacturers.For more on these points, I highly recommend this must-read op-ed by Warren Meyer, who asks "Why Are Democrats Promising to Raise Prices?":
Apparently Democrats are facing an odd problem in this election. For all the gnashing of teeth about gridlock and obstructionism, they actually have a pretty full basket of legislative accomplishments: The stimulus bill, cash-for-clunkers, Obamacare, financial regulation, and expiration of the Bush tax cuts. The only problem is that no Democrat seems to want to run on this record (and rightly so given how poorly much of this legislation polls).
So, despite having a fairly activist domestic legislative record, Democrats have chosen to seek out a new issue for this election: China-bashing. In particular, Democrats claim the American manufacturing base is declining in the face of unfair competition from a Chinese government that is unfairly helping its own manufacturers through currency manipulation and export subsidization.
To which I say: So what?
We should be thrilled that the Chinese government and its people see fit to spend their own money to subsidize lower prices for American businesses and consumers. Last week, President Obama put substantial pressure on the Chinese prime minister to revalue Chinese currency, a revaluation that would have the effect of raising prices of all Chinese goods in the United States. What possible sense does such a move make, particularly in a recession?
Indeed. Meyer uses lots and lots of great data to prove his points, most of which I've also mentioned here. But be sure to read the whole op-ed here. It's well worth your time.