Should China Be Forced to Alter the Value of Its Currency?
Point U.S. politicians frequently suggest that China needs to increase the value of the Chinese Yuan against the U.S. dollar, even though China has allowed the Yuan to float (within boundaries). The U.S. politicians claim that the yuan is the cause of the large U.S. trade deficit with China. This issue is periodically raised not only with currencies tied to the dollar but also with currencies that have a floating rate. Some critics argue that the exchange rate can be used as a form of trade protectionism. That is, a country can discourage or prevent imports and encourage exports by keeping the value of its currency artificially low.
Counter-Point China might counter that its large balance-of-trade surplus with the United States has been due to the difference in prices between the two countries and that it should not be blamed for the high U.S. prices. It might argue that the U.S. trade
Deficit can be partially attributed to the very high prices in the United States, which are necessary to cover the excessive compensation for executives and other employees at U.S. firms. The high prices in the United States encourage firms and consumers to purchase goods from China. Even if China’s yuan is revalued upward, this does not necessarily mean that U.S. firms and consumers will purchase U.S. products. They may shift their purchases from China to Indonesia or other low-wage countries rather than buy more U.S. products. Thus, the underlying dilemma is not China but any country that has lower costs of production than the United States.
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