Sunday, October 10, 2010
Protectionism in China
The Chinese currency, the renminbi, has been undervalued due to the Chinese government keeping 2.5 trillion American dollars in Reserve. The government has been using foreign exchange markets to buy dollars in order to keep them expensive and selling renminbi to keep them cheap. The currency is currently undervalued by 20 %. This policy is very protectionist, it puts automatic subsidies on exports and tariffs on imports and therefore protects domestic made goods. If the government were to revalue the renminbi to what its value should be, it will have a positive effect on our economy. US imports from China will be driven down, and US production will rise and export more goods. This will also decrease unemployment in the US by creating new jobs. From our economic perspective, it would greatly benefit us to push China to revalue their currency. However, there will be other effects to both the Chinese and World Economy that are negative and even unpredictable.
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3 comments:
Wasn't the Japanese economic crisis after we encouraged them to re-value their economy? The affect of a change in policy led people to change their outlook for the future, and eventually led to the "bubble bursting." If this were to happen in China millions of people who have been brought above the poverty level due to the recent economic growth would face tough times... and who knows how it would affect us.
It is only partially correct to assume that the Chinese economy may end up like the Japanese economic crisis. However, we should not forget that the Japanese economic crisis happened due to their culture of savings. The Japanese do not spend but use their savings to invest in the already overvalued stocks and real estate properties. As a result, there has been a creation of the bubble. However, we do not see this particular incidence occuring in China.
Ok, I can see that the U.S is trying to blame on the Chinese for currency manipulating that freezes the U.S employment rate. However, The United States itself also a currency manipulator? Check out this chart
http://2.bp.blogspot.com/_otfwl2zc6Qc/TK6E69_WJiI/AAAAAAAAOgw/1pRzVUGXR5c/s1600/dollar.jpg
The trade-weighted U.S. dollar index has depreciated by almost 40% over the last ten years vs. the world's major currencies
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