Few trade policy issues get the pulse
pounding faster than the value of China's currency, over which
the Chinese government keeps tight control. The exchange rate
is currently around 7.7 yuan per U.S. dollar-an increase in the
value of the yuan since the Chinese allowed their currency to
"float" in July 2005 but not nearly enough for critics of
China's trade policy, including many lawmakers on Capitol
Below are the opinions of two of the most
outspoken voices on the issue. Peter Morici, a former director
of the Office of Economics at the U.S. International Trade
Commission, is a recognized expert on international economic
policy. Daniel Griswold is director of the Cato Institute's
Center for Trade Policy Studies.
AMM Is China manipulating
Morici That's not a
theoretical issue-its intervention in currency markets is
recorded by the Bank of International Settlements and the
International Monetary Fund (IMF). China consistently buys
dollars in foreign exchange markets with yuan that it prints to
keep the dollar expensive and the yuan cheap. This prevents the
balance-of-trade deficit from correcting. They buy as much
currency as they need to maintain the target rate. If they
bought less currency, the value of the yuan would go up and the
dollar would go down.
manipulation is not a technical term with a precise and widely
accepted definition. IMF Articles of Agreement allow countries
enormous latitude in selecting and managing exchange rate
systems. China does stand out as one of the few major trading
nations that maintain a fixed currency. But to demand that
China implement a freely floating currency regime in the next
few months under penalty of trade sanctions is to ask of China
what we are not demanding of any other country at its stage of
AMM Wouldn't an upward
revaluation increase the price of imported products that United
States consumers rely on?
Morici Those products would
become more expensive. However, not all that we import from
China is cheap T-shirts. It's a whole range of products, and
it's at the upper ranges of the technology scale that we would
see the shift.
Griswald While the critics
of trade with China mistakenly focus on the alleged harm it
causes, they tend to overlook the benefits. Those include
lower-priced imports for U.S. consumers and businesses,
expanding export opportunities to China and the economy-wide
benefits of Chinese capital flowing to the United States.
AMM If you were U.S.
Treasury Secretary Henry M. Paulson Jr., what would you
Morici I'd walk across
Pennsylvania Avenue and tell Rep. (Charles) Rangel (D., N.Y.)
to get the Hunter-Ryan bill on the floor to give American
industry that tool to obtain redress from subsidized Chinese
Griswald Imposing punitive,
unilateral sanctions against imports from China because of its
foreign currency regime would be a colossal policy blunder.
Trade sanctions would, of course, hurt producers and workers in
China, but they would also punish millions of American
consumers through higher prices, disrupt supply chains
throughout East Asia, invite retaliation and jeopardize sales
and profits for thousands of U.S. companies now doing business
with the people of China.
AMM What if nothing is
Morici The U.S. already has
a $6-trillion debt as a consequence of this, and it goes up $50
billion a year. The debt service comes to $2,000 per worker.
That lowers U.S. productivity growth, research and development,
and so forth.
As a result, we will be diminished to a
second-rate industrial power and we will have to live with
China making the rules.
commercial relationship with China is not a crisis that demands
urgent action on the part of the U.S. government. People in
both nations are benefiting from rapidly growing and generally
normal trade and investment relations. The Chinese government
should continue to move steadily toward a more flexible
currency, with the goal of allowing the value of the yuan to be
set freely in global foreign-exchange markets alongside the
currencies of most other major trading nations.