Tuesday, October 11, 2011

Chart of the Day: Yuan Rises, Deficit Widens

The chart above is from The Economist, with the following commentary:

"As the chart above suggests, the recent relationship between China's currency and America's trade deficit with China is not what China hawks in the Senate think it is. Rather than a cheap yuan leading to a flood of Chinese imports, the yuan has actually strengthened as the deficit has widened. 

There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on. However the place for fixing these things is the World Trade Organisation, not Congress. President Obama's administration has already passed on two opportunities to label China a currency manipulator, out of a well-founded fear of sparking a trade war. Senators should do the same (while hoping that China responds to their sabre-rattling by letting the yuan rise a little more, as happened the last time the Senate came close to passing a similar measure, in 2005)."

Related: Don Boudreaux responds to the "Everest of errors that is Peter Morici’s argument that the U.S. trade deficit plays a large role in keeping the U.S. unemployment rate high."

6 Comments:

At 10/11/2011 11:53 AM, Blogger morganovich said...

consider:

china imports most of the fuel, natural resources, components, and capital equipment it uses to manufacture.

thus, every time the currency goes up, inputs get cheaper, thus, assuming they hold profit margins constant, prices on exports will not rise anything like what the currency does.

further, china is a Potemkin village of hobbsian overcapacity funded by reckless debt. companies are run for employment, not profit. they are not going to care in the way a US firm would.

it may hasten china's impending debt crisis, but is that really in our interest?

 
At 10/11/2011 12:12 PM, Blogger sethstorm said...

Do it anyway, and leave no room for loopholes.

 
At 10/11/2011 12:35 PM, Blogger wintercow20 said...

But ... but ... the yuan has not appreciated fast ENOUGH ... aha! Gotcha! You mislead!

 
At 10/11/2011 12:35 PM, Blogger sethstorm said...


companies are run for employment, not profit. they are not going to care in the way a US firm would.

You have that the wrong way around. Given that they will bend over backwards (while snapping the backs of any critics that refuse to bend) for businesses, I'd imagine they run it for political capital more than they run it for anything else.

 
At 10/11/2011 12:58 PM, Blogger Buddy R Pacifico said...

"There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on."

So, the value of yuan goes up but Chinese trade barriers intensify to help consolidate gains of state owned businesses.

 
At 10/11/2011 2:04 PM, Blogger morganovich said...

sethstorm-

no, it is you who are being naive.

china's government buys social calm by providing jobs through money losing GSE's that are funded with endless government money.

if china had high unemployment, there would be a revolution. the party knows this. they will keep those money losing GSE's running at any cost to avoid that.

there are not going to be price sensitive in terms of their output in the way a private firm would be.

 

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