If you can't beat 'em, bite 'em
November 21, 2009
Dean Baker from CEPR has a way to deal with the trade deficit without the Chinese government having to do a thing:
First, there is no issue of "manipulation" with China's currency. The
Chinese government is not sneaking around in the middle of the night
trying to influence currency prices. China has an official exchange
rate that puts the value of its currency well below the market exchange
rate. This official exchange rate is widely publicized. We don't have
to catch them acting improperly in the dark; anyone can just look in
the paper or call the Chinese embassy to ask what the exchange rate
target is.
Second, the US doesn't have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.
Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China's. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.
Second, the US doesn't have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.
Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China's. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.
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