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It is not in the US best interest for China to release the yuan. If that were to happen, the buying power of chinese holders of the yuan will increase to the po
by fnid2 17y ago
It is not in the US best interest for China to release the yuan. If that were to happen, the buying power of chinese holders of the yuan will increase to the point that their demand for goods will compete with the U.S. demand for goods. As the dollar declines, American buying power will also decline, as will american "quality" of life.
More expensive chinese goods will not lead to more american manufacturing. Instead, it will lead to more Indian. Pakistani, Bangladeshi manufacturing. A more valuable yuan will be a short term fix -- if it is a fix -- which I don't believe it is.
If the yuan is released, the dollar will cease to be the world reserve currency in an economic blink of an eye. While it is fixed, there's no reason to switch from dollars to yuan, but as the yuan begins to climb, fewer and fewer banks or even individuals will want to hold the dollar and our savings will dwindle due to the massive inflationary effects.
The U.S. consumer of goods -- all goods -- not just "cheap chinese crap," buys most of their stuff from overseas. Many asian countries and south america are huge suppliers of electronics, textiles and food. 1.5 Billion people in china also need to eat and when they can pay 150% in the exporters' local currency relative to what american retailers can pay, why would they bother shipping those goods across an ocean? Why wouldn't south america send their ships to asia instead of Los Angeles?
The only solution to this problem is for America to stop needing the plastic fix. They need to start saving their money, investing their money, and producing goods the rest of the world wants to buy. There is no other solution in a global economy.
Protectionism won't work. Complaining won't work. Badgering China to deflate the yuan won't work.
- garply 17y ago"While it is fixed, there's no reason to switch from dollars to yuan, but as the yuan begins to climb fewer and fewer banks or even individuals will want to hold the dollar and our savings will dwindle due to the massive inflationary effects. " Actually, this speaks to me personally. The yuan is not really fixed to the dollar permanently - it's been climbing gradually over the past several years. As an American in China, I have done just as you have said - I've gradually moved as much of my cash to RMB as possible and enjoyed each time the gov't raised my purchasing power back home. As I now operate a business here and am paid in RMB, I personally look forward to it happening again in the near future. Also, I think, at least in the short term, you are right. Increasing the value of the yuan will noticeably damage the average Joe's quality of life back home. All those little 'made-in-China' things that you buy without even noticing will suddenly become more expensive. Which means you will get less of them. Which means you will have less of the stuff that you are accustomed to having. In the long term, I think a floating Yuan is probably healthy for all parties involved - for the US, because some of the imported Chinese goods will be produced back on home soil and for the Chinese because it will foster more domestic, service-oriented consumption (i.e., a modern economy).
- grantc 17y agoWe're just pinballing around looking for a silver bullet here. The reality is we save and invest too little and purchase too much from abroad. Like fnid says, the way to address the problem is a function of changing American behavior and increasing the value of our exports while saving more. This requires us to put off consumption in this generation for the benefit of the next one--sadly, this is the last thing Americans are going to sign up to do, ergo the search for a magic quick fix. The Chinese response to a "surcharge" seems pretty obvious. China does purchase a lot of US exports--they're financial products aka Treasuries. America needs China to keep buying this to keep its whole leveraged jenga-stack of an economy intact. Devaluing US debt would hurt China, but it would hurt the US a lot more. Which Krugman is talking is usually an important distinction... brilliant economist Krugman or OpEd/best-selling author Krugman?
- deleted 17y ago[deleted]