Among the many issues discussed at the Asia Pacific Economic Cooperation Conference in Singapore, free trade and the Yuan's value created friction between the US and China. Basically, the US was calling on China to loosen its managed floating exchange rate regime to reflect a higher valuation of the Yuan. The US argues that the Yuan has been kept unreasonably undervalued to make exports competitive, contributing to the US' trade deficit with China. China hit back at the US, accusing it hypocrisy in imposing trade barriers by levying tariffs on Chinese steel and tire imports, while pressuring China to liberalize the Yuan.
The outcome of this dispute will be interesting. With China's rising economic influence, the US will have less and less control over global economic issues. With this dispute, another issue arises - How much has the US lived up to its mantra of free market capitalism that it has championed since the cold war?
1 comment:
I found this article to be very interesting since it supports many of the notions of Joseph Stiglitz about the US pursuing sometimes mostly political than economic goals. Clearly, the main issue in this situation is the weakening influence of the US compared to China. China has always made things not looking at what the IMF, which is strongly influenced by the US, would say. Keeping its yuan pegged to the dollar is one of the examples. If China lets yuan float, it will definitely appreciates against the dollar, which would make Chinese exports less competitive and, potentially, would slow down the growth. Considering Chinese gradual approach towards transition to a market economy, I think that the government should retain its control over the exchange rate, and maybe adjust it gradually towards more realistic value. Letting the exchange rate float now would definitely have a harmful effect on the economy.
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