Changing China’s Currency Calculus

As efforts to reinvigorate the American economy continue, one of the administration’s highest priorities should be collaborating with Congress on current proposals – including the Currency Exchange Rate Oversight Act – aimed at restoring a fair and balanced trade relationship with China. Doing so will protect existing jobs, create new ones and help secure a prosperous future for America. The U.S.-China trade relationship has long-been massively imbalanced – imports have far exceeded exports since the 1960s. This trend has progressively worsened and it has cost American jobs. A report from the non-partisan Economic Policy Institute estimated that between 2001 and 2010, 2.8 million American jobs were lost or displaced due to the trade deficit. Part of the blame for this trend lies with inexorable changes due to globalization, but a large portion also belongs with China and its market-distorting practice of currency devaluation. The Chinese no longer peg the renminbi directly to the dollar – as they did for many years – but they have continued to hold its value artificially low through other means. China’s economic growth has far outpaced the American economy over the past decade, which under normal circumstances would lead to an increase in the renminbi’s relative value. Instead, the Chinese currency has remained undervalued and China’s exports to the U.S. have become much cheaper as a result. This has helped drive U.S. manufacturers out...

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