This thought from MJ Perry gives more clarity to the issue...........
"Let me break from [the] consensus about China's currency policy and present an alternative position: In the best of all possible worlds for the United States, China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics, and appliances and send $300 billion worth of these products to U.S. consumers for free every year as a gift or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs, and natural resources at no charge, as a gift to American manufacturers every year. (Note: That's roughly the amount of goods we will purchase from China this year.) . . .
Unfortunately, that extreme Chinese generosity is not realistic, so here's a possible second-best outcome: . . . [China] agrees to send us $500 billion worth of consumer and industrial goods every year, but agrees to sell us those manufactured goods at a substantial 20 percent discount for only $400 billion. In that case, the amount of foreign aid will be less than the $400 billion in the first example, but will still be significant—a $100 billion gift every year from the Chinese people to the American people.
How will China generate this $100 billion in annual foreign aid to the United States? One way is to keep its currency undervalued to bring about the 20 percent discount on its products coming to America.
Which then raises the question: If China is willing to undervalue its currency, and in the process provide approximately $100 billion of foreign aid annually to American consumers and businesses, what's the problem? Why should we complain?"
Read his blog here..........
1 comment:
A country devaluing it's own currency is making a conscious choice to help its export producers, who can sell cheaper, at the expense of it's import consumers, who have a higher cost of living. Since consumers are often employed by producers, the devaluation has a mixed effect on each individual's standard of living. The short term results are usually a net wash for society but with individual net consumers enduring a higher cost of living. The US with it's dollar relatively strong, has been the beneficiary of low costs to consume, though "The 99%", in all its glorious ignorance, would be surprised to hear that.
The Obama administration asking for China to revalue it's currency is showing that it probably has no idea that this is a double edge sword. Yes we would be able to sell to China cheaper but the average US citizen, paying more for imports, would have a higher cost of living to subsidize American exports. Not necessarily a bad thing, but is diametrically opposite to the supposed Obama policy of being the advocate of the little guy.
The long term effect can play out in many ways depending on how well producers prepare for the time when their currency goes up in value. A strong American dollar in the long term could be a good thing for America as it should foster producers retooling and competing on quality, and productivity, not price. But I'm afraid our monetary policy is only short term nowadays.
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