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Imbalanced assumptions: the yuan

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1 Imbalanced assumptions: the yuan on Mon Apr 26, 2010 12:39 pm

littlekracker


Imbalanced assumptions: the yuan
April 26, 2010 3:51pm
by Emma Saunders


Growing evidence suggests a stronger yuan would not help the US economy nearly as much as thought, if at all. Even increased Chinese consumption is shown not to help much. So why do these assumptions continue to underpin politicians’ rhetoric?

First, the evidence:

1. Yuan revaluation could cut global growth by 1.5 per cent (China Center for Economic Research, via VoxEUmg, April 26)
2. Chinese saving less and spending more would have very little impact on US jobs (Researchers from BIS and Hong Kong Monetary Authority, via VoxEU, April 25)
3. A 15 per cent appreciation of the RMB would reduce the American trade deficit by 5 per cent by the end of next year, but would be short-lived and would not flow through to GDP (PwC scenario analysis, April 16);
4. “Chinese revaluation is in the interests of China, not the US” (Overall conclusion of 28 short essays on the topic, CEPR, April 16)
5. “People seem to ascribe a ridiculously outsized role to China’s currency policy in producing China’s trade surplus and America’s trade deficit. The level of rhetoric is simply not consistent with the impact of the peg.” (The Economist, March 15)

Even large changes in Chinese currency or consumption have little effect on the other side of the Pacific: US-China trade is simply too small to transmit much of the effect, so the arguments run.

So, second, why the continued assumption that changes in Chinese policy can cure all? (1) Perhaps the assumption is misunderstood; (2) Perhaps the assumption is useful, and hence wilfully ill-examined; (3) Perhaps the pro-revaluation camp are a diverse bunch, in which a minority would genuinely benefit, albeit temporarily (e.g. exporters), and the rest are happy to use their arguments; (4) Perhaps it suits politicians to seek an external cause for the problems they face.

Economists should be able to agree - broadly - on the size and significance of a yuan revaluation or change in consumption. Delaying this agreement is wasting time. If the actions of the Chinese are not going to fix the problem - and why should they, it was we who bought trainers we didn’t need, now lying in landfill - we should be asking politicians to focus their energies on policies that will.

2 Re: Imbalanced assumptions: the yuan on Mon Apr 26, 2010 1:24 pm

Guest


Guest
Delaying this agreement is wasting time. If the actions of the Chinese
are not going to fix the problem - and why should they, it was we who
bought trainers
we didn’t need, now lying in landfill - we should be
asking politicians to focus their energies on policies that will.

it is a waste of time and tax dollars having senate hearings over and over about stupid china!! and what in the heck are "trainers"???

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