China's currency is a 'real problem'
By Andrew Conte, PITTSBURGH TRIBUNE-REVIEW
Sunday, September 26, 2010
China's currency is a "real problem" President Barack Obama said last week before meeting with a top Chinese official in New York.
Sure, the relatively low value of China's yuan to the United States' dollar keeps down the cost of consumer goods here.
But according to international economists, union officials and lawmakers, the currency dispute hurts American workers too — by making it harder for them to compete.
"They have not done everything that needs to be done," Obama said about the Chinese.
Here are ten things to know about the currency dispute:
• Cheap stuff. By keeping the value of its currency artificially low compared to the dollar, China cuts the cost of exports, according to the Peterson Institute for International Economics in Washington.
That, in turn, eats into American productivity and costs the United States about a half-million manufacturing jobs, it says.
"It is absurd ... that other countries set the exchange rate of the dollar," the Peterson Institute's C. Fred Bergsten recently told Congress.
• Oh what a feeling! Japan also took action this month to keep its currency, the yen, from getting stronger against the dollar.
Japan's central bank started buying up dollars after the yen rose 10 percent against the dollar, hitting a 15-year high, the Associated Press reported. The exchange rate moved to 85 yen to the dollar, from 118 yen to the dollar five years ago.
For every one-yen change down in the exchange rate relative to the dollar, Toyota Motor Corp. loses about $351 million, the AP reported
• The time for talk is over. The United Steelworkers' union says it wants action.
The union cites an estimate that the United States' trade imbalance with China has cost 2.4 million American jobs since 2001. It says the yuan, known as the renminbi, has fallen 40 percent below its value — giving the Chinese a deep subsidy on exports and an effective tax on U.S. products.
• Advantage overblown. The USW's estimate is probably too high — and even if the value evened out, Chinese jobs would not necessarily shift to the United States, according to the U.S.-China Business Council in Washington. Manufacturers would go to other low-cost countries instead.
Rather than placing a tariff on Chinese goods, the United States needs to keep up diplomatic pressure on China's leaders to let the yuan rise, said John Frisbie, the council's president. Its value has increased about 2 percent since June.
"We want that exchange rate to move," Frisbie said. "The question is, what is the best way to do it?"
• Soy, oh, soy. The Chinese have a stake in increasing the value of their currency because it would cut the cost of imported daily commodities such as fuel and soy beans, Frisbie said.
"Economists over there would probably share same view as us: Their currency should better reflect trade flows," he said.
• One option. Some in Congress want the Obama administration to make a formal complaint to the World Trade Organization over the currency dispute.
The United States already challenged China over cheap steel pipe this month, and the Obama administration could make a case over currency too, said Sander Levin, a Michigan Democrat and chairman of the House Ways and Means Committee.
• Shot across the bow. If the Chinese refuse to act, the United States could fight back by purchasing yuan, the Peterson Institute's Bergsten told lawmakers.
The problem is that China does not trade its currency on an open market like the dollar, so the United States would be limited to making essentially a symbolic move, Bergsten said. Still, the message would be clear.
"Such an initiative by the United States would clearly indicate the seriousness of its concern," while providing an "unmistakable and, indeed dramatic, signal to the markets," Bergsten said.
• Game on. More than anything, the Chinese want stability against a sudden increase — or drop — in the value of their currency, said Christopher McNally, a political economist at the East-West Center in Hawaii.
Still, they're willing to go along with the Americans if it will reduce political pressure, he said. The Chinese likely will let the yuan's value continue to inch up at least through the United States' mid-term elections in November.
"The Chinese see this very much as a political game on the part of the United States," McNally said. "It's about elections — and they're willing to play along."
• Paper tiger. Currency concerns are a distraction from real problems, said Allan Meltzer, a Carnegie Mellon University professor who served 16 years as an honorary adviser to the Bank of Japan.
The issue remains the United States' annual budget deficit, he said. If the United States spent within its means, it would not have to borrow as much from foreign countries, led by the Chinese. The better answer, he said, would be to cut wasteful spending.
"The present system is one in which the Chinese sell us goods, we run a big deficit and borrow," he said. "We have to borrow from them to pay for those goods."
• Thanks, buddy. In a way, the Chinese could be doing us a favor, economists said.
If the Chinese suddenly opened their currency, investors around the world might transfer money from U.S. Treasury bonds and cause instability here.
"The caveat is (the Chinese) should move faster," McNally said. "They've been too slow, too wedded to their stability. They should have increased and introduced more flexibility to their currency."
By Andrew Conte, PITTSBURGH TRIBUNE-REVIEW
Sunday, September 26, 2010
China's currency is a "real problem" President Barack Obama said last week before meeting with a top Chinese official in New York.
Sure, the relatively low value of China's yuan to the United States' dollar keeps down the cost of consumer goods here.
But according to international economists, union officials and lawmakers, the currency dispute hurts American workers too — by making it harder for them to compete.
"They have not done everything that needs to be done," Obama said about the Chinese.
Here are ten things to know about the currency dispute:
• Cheap stuff. By keeping the value of its currency artificially low compared to the dollar, China cuts the cost of exports, according to the Peterson Institute for International Economics in Washington.
That, in turn, eats into American productivity and costs the United States about a half-million manufacturing jobs, it says.
"It is absurd ... that other countries set the exchange rate of the dollar," the Peterson Institute's C. Fred Bergsten recently told Congress.
• Oh what a feeling! Japan also took action this month to keep its currency, the yen, from getting stronger against the dollar.
Japan's central bank started buying up dollars after the yen rose 10 percent against the dollar, hitting a 15-year high, the Associated Press reported. The exchange rate moved to 85 yen to the dollar, from 118 yen to the dollar five years ago.
For every one-yen change down in the exchange rate relative to the dollar, Toyota Motor Corp. loses about $351 million, the AP reported
• The time for talk is over. The United Steelworkers' union says it wants action.
The union cites an estimate that the United States' trade imbalance with China has cost 2.4 million American jobs since 2001. It says the yuan, known as the renminbi, has fallen 40 percent below its value — giving the Chinese a deep subsidy on exports and an effective tax on U.S. products.
• Advantage overblown. The USW's estimate is probably too high — and even if the value evened out, Chinese jobs would not necessarily shift to the United States, according to the U.S.-China Business Council in Washington. Manufacturers would go to other low-cost countries instead.
Rather than placing a tariff on Chinese goods, the United States needs to keep up diplomatic pressure on China's leaders to let the yuan rise, said John Frisbie, the council's president. Its value has increased about 2 percent since June.
"We want that exchange rate to move," Frisbie said. "The question is, what is the best way to do it?"
• Soy, oh, soy. The Chinese have a stake in increasing the value of their currency because it would cut the cost of imported daily commodities such as fuel and soy beans, Frisbie said.
"Economists over there would probably share same view as us: Their currency should better reflect trade flows," he said.
• One option. Some in Congress want the Obama administration to make a formal complaint to the World Trade Organization over the currency dispute.
The United States already challenged China over cheap steel pipe this month, and the Obama administration could make a case over currency too, said Sander Levin, a Michigan Democrat and chairman of the House Ways and Means Committee.
• Shot across the bow. If the Chinese refuse to act, the United States could fight back by purchasing yuan, the Peterson Institute's Bergsten told lawmakers.
The problem is that China does not trade its currency on an open market like the dollar, so the United States would be limited to making essentially a symbolic move, Bergsten said. Still, the message would be clear.
"Such an initiative by the United States would clearly indicate the seriousness of its concern," while providing an "unmistakable and, indeed dramatic, signal to the markets," Bergsten said.
• Game on. More than anything, the Chinese want stability against a sudden increase — or drop — in the value of their currency, said Christopher McNally, a political economist at the East-West Center in Hawaii.
Still, they're willing to go along with the Americans if it will reduce political pressure, he said. The Chinese likely will let the yuan's value continue to inch up at least through the United States' mid-term elections in November.
"The Chinese see this very much as a political game on the part of the United States," McNally said. "It's about elections — and they're willing to play along."
• Paper tiger. Currency concerns are a distraction from real problems, said Allan Meltzer, a Carnegie Mellon University professor who served 16 years as an honorary adviser to the Bank of Japan.
The issue remains the United States' annual budget deficit, he said. If the United States spent within its means, it would not have to borrow as much from foreign countries, led by the Chinese. The better answer, he said, would be to cut wasteful spending.
"The present system is one in which the Chinese sell us goods, we run a big deficit and borrow," he said. "We have to borrow from them to pay for those goods."
• Thanks, buddy. In a way, the Chinese could be doing us a favor, economists said.
If the Chinese suddenly opened their currency, investors around the world might transfer money from U.S. Treasury bonds and cause instability here.
"The caveat is (the Chinese) should move faster," McNally said. "They've been too slow, too wedded to their stability. They should have increased and introduced more flexibility to their currency."