Anti-China Legislation Is Not the Solution

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Why does Congress find it so convenient to blame the supposedly undervalued renminbi for America's economic ills? With a political system seemingly unable to address America's deeper fiscal and competitive issues that keep the unemployment rate stubbornly high, it's far easier to complain that China's export prowess is the real culprit. But the basis for this accusation just keeps getting weaker over time.

China's exchange rate has appreciated by more than 25 percent over the past six years and Beijing intends for it to appreciate steadily by 5-6 percent annually. As the U.S. dollar strengthened over the past several months in response to the problems in the eurozone, the renminbi has been the only major trading currency to appreciate while the others have typically depreciated by 5-10 percent. And China has cut its trade surplus from the 7-8 percent of GDP five years ago to a projected 1-2 percent this year. Although foreign reserves continue to mount, this has more to do with capital inflows seeking higher returns—nurtured by expansionary U.S. monetary policies—than by an undervalued renminbi.

[Read about a Congressional bill aimed at making China raise the value of its currency.]

But more importantly, fixating on bilateral trade balances is meaningless when global production is being outsourced to production sharing networks and the supply chain is managed by the Walmarts and Apples of the world. Half of China's exports are "processed" products that draw on a variety of components produced primarily throughout East Asia—but also the United States and Europe—and are ultimately assembled in China. The finished products are then exported primarily to major economies, but also increasingly to other developing countries. This processing trade actually accounts for China's trade surplus as the remainder, which draws exclusively on domestic resources, generates a trade deficit. This means that the U.S. deficit with China is really a deficit with East Asia as a whole.

Addressing global imbalances requires multilateral solutions and cooperation rather than something like an anti-China currency bill that only fans counterproductive sentiments.

Yukon Huang

About Yukon Huang Senior Associate at Carnegie Endowment for International Peace

deficit and national debt

Other Arguments

231 Pts
Chinese Currency Bill Won't Spark Trade War

Yes – Chinese Currency Bill Won't Spark Trade War

Scott Paul Executive Director of the Alliance for American Manufacturing

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For a Serious Impact, Tax Chinese Assets in the United States

Yes – For a Serious Impact, Tax Chinese Assets in the United States

Joseph Gagnon Senior Fellow at Peterson Institute for International Economics

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A Devalued Renminbi Makes Wealthier Americans

No – A Devalued Renminbi Makes Wealthier Americans

Donald J. Boudreaux Professor of Economics at George Mason University

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Protectionism Could Engender Chinese Retaliation

No – Protectionism Could Engender Chinese Retaliation

Andrew Roth Vice President of Government Affairs at Club for Growth

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