As we discussed in class on Tuesday, the success of the "Asian Tiger" strategy is predicated on having a stable macroeconomic policy. More specifically, a country's macroeconomic policy will be considered stable if it consists of low inflation with a stable and "appropriately valued" exchange rate. As this Op-Ed Wall Street Journal article writes, the value of the Dollar in the international market may see an increase in the future. The article argues that, even though the Dollar may lose the currency war, it will appreciate. While currency appreciation is associated with deflation, one aspect of a stable macroeconomic policy, losing the currency war may be the more noteworthy outcome discussed in this article.
While the United States remains to be the world's largest economy, China, the world's second largest economy, continues to exhibit it's legitimacy as a threat to the United States. As discussed in this Article, China's economy continues to grow with a combination of increased exports and slowing inflation. As a consequence of China's continuing economic expansion, Chinese investment in the United States continues to grow. Investment in U.S. firms by Chinese companies totaled $10.7 Billion in 2012, which the article explains, is "higher than the Chinese total from 2009 through 2011 combined." Such a massive increase in Chinese investment is one indicator of China's growing strength as they narrow the gap with the United States as the world's largest economy. Many experts are claiming China's continued growth is a cause of their undervalued currency. This is a topic we discussed in class as well; an undervalued currency makes exports artificially discounted. This benefits the consumer but hinders the success of domestic producers. If these experts are correct in their assessment, then China's economy could face difficult times in the future. If the currency were to undergo a revaluation, their inflation would increase and their exchange rate would prove to be inappropriately valued, i.e. their macroeconomic policy would become highly unstable. Time will only tell if China's continued growth is sustainable.
China’s undervalued currency has been a major talking point within the United States for quite a while, particularly in the manufacturing sector where jobs have been steadily lost due to America’s inability to compete. However, the value of China’s currency has been on the rise recently – partly due to the pressure the United States put on the Chinese government, indirectly labeling them as “currency manipulators.” There have also been continual wage increases among Chinese workers, which have shifted the China poses to American manufacturers to countries such as Bangladesh and Vietnam. Within the coming decade, I would not be surprised to see China as less of a competing manufacturer, but instead as a bigger investor in American high-technology sectors. While China may still currently pose a threat to the United States in terms of power, its revaluating currency could change this. This will not, however, necessarily prevent American manufacturing companies from then moving their businesses to other countries with lower wages.
ReplyDeleteGreat first blog bro! China's currency being pinned beneath the dollar to favor exports is a salient discussion topic especially to young conservatives like you and me. It is important for members of the WTO and the IMF to push for reforms in currency devaluation and I strongly believe that our secretary of Treasury needs to actually explain why China's low currency threatens our economy rather than just having boring rhetoric about how China is our enemy.
ReplyDeleteThis is a very interesting topic, especially considering the relevance to the presidential debates last October. Mitt Romney mentioned many times that, if he were elected, he would label China a "currency manipulator." Though trade is an obvious point of contention between China and the US, what would we be risking by engaging in trade conflict with China? Beginning a sort of "trade war" with China could be detrimental for consumers in the US. Though China does artificially devalue their currency, this lets US consumers win by allowing US customers to purchase goods at a low price. If the US were to place tariffs on Chinese goods, US consumers would see a drastic change in the price of goods. Dealing with Chinese trade could be dangerous territory for the US. Our government may want to 'wait it out' to see if China's undervalued currency can be sustained.
ReplyDeleteIt will be interesting to see how this topic develops further, especially since China is now being seen as a threat to the United States in terms of trade. It is hard to think that this dispute could escalate into a trade war seeing as the United States is so dependent on China's exports. So, I agree with Bridget that it might be wise of our government to apply the "wait and see" policy with this issue.
ReplyDeleteSeeing as China's economy has continued to grow, it's no wonder a number of U.S. manufacturers are turning to Obama to implement new regulations on trade. As Lizzy noted , this manufacturing sector associates China's growth to manipulating thier currency in order to gain a trade advantage. A weaker yuan makes Chinese goods cheaper for American consumers and U.S. goods more expensive in China. The New York Times article this month in the business section notes that in the past couple of months, both the U.S. House of Representatives and Senate have passed bills to give Obama new tools to push China into letting the yuan rise faster in value to address this problem, but neither made it all way to his desk to sign into law.
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