Thanks to Alpha Asian, who posted this article on the topic of whether the Chinese are manipulating their currency. According to the article, people in the U.S. take it for granted that China is manipulating its currency, while the Chinese think that American politicians are twisting and oversimplifying a complex issue just before elections.
I think it’s hard to refute that China is controlling its currency. It’s quite clear that that is why they’re buying all those treasuries. If they let it float, the reminbi would shoot up.
At the same time, I agree with the idea that floating the renminbi wouldn’t necessarily be a boon to our economy either.
Andy Rothman, a strategist with the CSLA brokerage in Shanghai, says Americans need to be careful not to shoot themselves in the foot — or in the pocketbook.
He says a stronger Chinese currency would mean more expensive Chinese goods in the U.S. And those aren’t necessarily goods that can just be made in the U.S. instead.
“When was the last time you saw a factory in the U.S. making a laptop or a DVD player or flat-screen TV?” Rothman says.
If we paid fair market value for our laptops and DVD players and flat-screen TVs, we’d be in worse financial shape than we are right now. With unemployment soaring, we can’t even afford stuff as it is right now, so why would we want to spend more for items that we don’t have with money that we aren’t making?
I don’t know what the solution is. If China had more of an appetite for American goods, perhaps there would be a way to level the playing field, but the problem, as one astute commenter under the NPR article seems to imply, is that we don’t make anything that the Chinese need or want . Our cars are more costly than Chinese cars, we’re prohibited by law from selling them weapons and other high tech devices that could be used for war (such as supercomputers and probably certain aircraft), our raw materials can be found at a better price in Africa, and the Chinese grow their own agriculture. The only advantage we have is artistic–movies, books, and other intellectual forms of property might be more attractive because of the freer atmosphere in this country. But there are problems in these areas too–copyright laws are loosely enforced in China, so they usually get these goods for free. (In addition to floating their currency, I think the Chinese also have to do a better job of enforcing intellectual property rights. I can understand if some illegal copying gets by, but when there are whole warehouses of bootlegged CDs and DVDs that law enforcement casually ignores, that’s a problem.)
I hate to say it, but those Chinese economists at the end may be somewhat right:
Chinese economists say the way to solve the deficit is not to push China to revalue its currency, but to help lift more Chinese people out of poverty and into the nascent middle class, so they can buy more U.S. products.
I say “somewhat” because they have to do a better job at letting their currency appreciate lest they continue to hammer our economy. Hey, it’s a team effort–if China wants the U.S. to lift Chinese people out of poverty, then China should do its part to help the U.S. get out of its financial crisis too. But they’re right in that only when there exists a solid middle class in China with disposable income will we be able to sell them goods and to help to alleviate the deficit. There are 1.3 billion Chinese people, and it’s going to take a long time for most of them to work their way up to middle class, which means that there could be a long period of time before we recover and can once again become profitable as a country.