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A stronger Chinese yuan will eventually hurt U.S. exporters and cost U.S. consumers more, said two U.S. foreign exchange experts in an article published Tuesday by the U.S. Foreign Policy journal.
Their comments came as Washington politicians are raising pressure on China to strengthen its currency.
"The escalating calls for China to re-balance its currency are based on deeply-flawed assumptions and will only make Americans pay more for their favorite products -- like iPhones," said Dan Newman, an economist in Seattle, and Frank Newman, former deputy secretary of the U.S. Treasury.
In the article titled "Hands Off the Yuan", the two experts said the notion that a stronger yuan against the U.S. dollar would boost the U.S. domestic production and reduce the U.S. trade imbalance is based on wrong assumptions.
Under the pressure of the election year and high unemployment, U.S. Senator Chuck Schumer and four other senators proposed legislation on Tuesday to press China to appreciate its yuan.
In their bill, they threatened to impose a 27.5-percent tax on Chinese products imported into the United States if China does not let yuan appreciate.
The move came two days after Chinese Premier Wen Jiabao said that the yuan is not undervalued. The Newmans argued that "making Chinese products more expensive in the United States will do nothing to shift production to U.S. factories.
"Increasing the value of the yuan does not increase U.S. exports by making them cheaper abroad. If the yuan rises in value, it does not spur Germans to start driving Fords" they said.
And a stronger yuan in many cases means higher costs for U.S. goods, too. A large proportion of goods imported from China are not end-state products, but only components for further assembly in the United States.
"If yuan becomes stronger, it will increase costs for American consumers," the article added.
"A rise in the yuan, though, would nudge production toward other developing countries, giving the United States an artificial indicator of success: the trade deficit specific to China would fall. But the overall trade imbalance would likely actually worsen.
"To buy the same 100 dollars phone, an American would send 130 dollars to Beijing or perhaps 120 dollars to Singapore. In either case, more dollars would go abroad for the same goods." The article added that "there is a better way to improve the U.S. trade deficit and help American workers and consumers. To do so, Washington needs to help provide opportunities for U.S. exporters."
The Newmans also suggested that the United States and its skilled workers should see more success by focusing on improving ways to get their goods and services to the billions of people who want them. |
