The slew of articles declaiming the “damage” of China’s pegged yuan

BRIEFING: “Lost in translation: If China sharply revalued the yuan, as American politicians are demanding, it could actually hurt the United States and help China,” The Economist, 19 May 2007, p. 73.

Bunch of these articles lately, pointing out what a lot of people have been saying for a while: pegging the yuan to the dollar has been great for America. We get deflationary pressure, plus our remains cheap from the recycling.

It’s really Europe that gets screwed in the process.

If China revalues, then what? It won’t cure the fact that Americans spend too much and save too little. It won’t reduce our imports, because restricting Chinese imports will lead to Americans simply importing the same products from other nations, not in our building such products ourselves. There is no substitution effect here.

And cheap Chinese imports don’t cause unemployment here, unless you think 4.5% is a lot of unemployment (actually, it’s close to our lowest number in decades).

China would actually benefit more than we would from such a revaluation, because it would help them shift money from investment to consumption, which would allow them to moderate the growth of the economy better and help avoid bubbles and crashes caused by excess liquidity (there is such a thing as having too much money in the system).

And yet watch Congress pursue all sorts of tariff threats, making you wonder if there’s one decent economist out of the 535.

Comments

[Lexington Green]

That would also create an even stronger political opposition to foreign conflict, especially with the USA. Anything that smacks of autarky is bad. Millions of Chinese investing abroad would tie them much more tightly to the existing international politico-economic order.

Who needs to be prodded on this?

[MV]

I am not sure I agree with this premise. Isn't almost any effort to bring China's policies to international standards good for the global economy? And wouldn't stablizing China's growth rate be good for the global economny by reducing the chance of China over-heating? The direct benefits to the US maybe small or nill, but the indirect benefits from a stable and politically more advanced China maybe worth the change.