1. The issue is that China changes the value of the Yuan daily and keeps it low to ensure a strong demand for Chinese products and production. This is something we see often and people joke that everything is made in China because it’s just so cheap to import. Many believe that if China allowed the market to fluctuate according to demand, that the Yuan would be much higher and there wouldn’t be the trade deficits we see today. Which by the way was at a $419.2 billion deficit in 2018 and has since taken a dive down to $345.6 billion since the tariffs and trade war began according to The USTR.
Now, as for if China should be forced to increase it’s currency, I do not believe so. I think there needs to be a balance of trade and the people we elect can discuss those things. We have seen the POTUS claim that he argued a great deal for the U.S and hopefully we will see the fruits of that soon. But if one country can produce things at a better rate, then it’s something which should stay because there’s a reason for the high demand and it’s more than people being cheap. Also, the cost will also come back to us at the bottom, it always seems to find us at the end.
2. Many have claimed that China is manipulating their own currency, the Renminbi, for personal gain. While this may be the case, many other countries use similar tactics to avoid inflation, make their exports more competitive, reduce the inflow of capital into the country, and a whole host of other reasons. It is also claimed that the value of the Renminbi is currently undervalued to the dollar compared to what it would be less any intervention by the Chinese government.
To force a nation to adjust its own currency by raising the value may cause more harm than good and may prove ineffective as this would hurt the country in the long term. If China were to raise the value of their currency, their exports would become more expensive to foreign buyers which will prevent them from being as competitive in the short term. This would also make imports less expensive which consumers may show a preference to when compared to more expensive domestically made goods. I do not believe China should be pressured or forced to raise the value of its currency since other nations, including the US, engage in currency manipulation as well. Instead, a new global consensus must be reached for international monetary policy and exchange rate manipulation laws.
Howard, Laurence. “Chinese Currency Manipulation: Are There Any Solutions?: Emory University School of Law: Atlanta, GA.” Emory University School of Law, law.emory.edu/eilr/content/volume-27/issue-2/comments/chinese-currency-manipulation.html.
3. I think we can all agree that China’s currency remains low in order to capture competitive market global share in a variety of industries. By gaurding the currency against appreciation, China is able to keep export prices low and therefore demand for produced goods high. Some would call this an unfair advantage but I would urge you all to consider what they are losing out on. First, standard of living for Chinese citizens is quite low as wages must be competitively low in order to control costs. This means that the people of China are unlikely able to afford imported goods with comparatively high prices. Additionally, devaluation of their currency have adverse inflationary effects requiring the central bank to raise interest rates which slows economic growth. Also consider the psychological consequences: with drastic depreciation of a currency, investor confidence suffers which hinders foreign investment. With these negative side effects, it seems against China’s internal best interests to persue policies that reduce the value of their currency.
Recent tensions surrounding the trade war have brought attention to China’s devaluing currency but claims that this is intentional have been refuted by the Chinese government. The IMF supports a truce in the bilateral trade dispute since the war has significant damaging effects to the global economy in a time of weak global trade and investment. The depreciation of the yuan results in an incentive for competitors to devalue their currencies leading to currency wars. This hurts purchasing power for citzens of those countries, creates uncertainty for investors and importers and spurs recessions. Because of these damaging effects to China, I do not think they should be forced to revalue their currency. They should however consider the potential unfavorable economic side effects and ensure that their currency is valued to avoid these far-reaching problems.