| |
Ethos Perspectives
The US Trade Deficit and the Revaluation
of the Renminbi
Introduction
China’s rapid economic growth
and its mounting trade surplus with the US have ignited fierce
debate on whether the Renminbi (RBM) is “undervalued”
and whether China should revalue or float its currency immediately.
This issue has grabbed the attention of the international
media, which have highlighted the increasing appeal of protectionist
instincts in the US and the associated risks from a deteriorating
Sino-US relations. On 9 May 2007, the US House of Representatives
held a hearing on “Currency Manipulation and Its Effects
on US Businesses and Workers”, which many analysts and
commentators suggested could spell the start of US resistance
to trade liberalisation and globalisation.
This issue of Ethos Perspectives examines
whether the appreciation of the RMB will resolve the US deficit
problem or create financial problem for the US economy.
Debate on the US trade deficit
Much of the blame for the US current account deficit has been
attributed to China, whose contribution makes up almost 30%
of the US' total deficit of $233 billion in 2006. In his article,
Jeffrey (Reference 1) corrects three myths surrounding the
large US-China trade deficit. Firstly, he opines that the
sizeable US-China trade deficit "proves nothing"
and "largely reflects Asia's changing supply chain".
China has merely taken over the lower-end manufacturing functions
of Japan, South Korea and Taiwan (once suppliers for the US)
as their economies progressed. While China runs large trade
surpluses with the US, it runs deficits with the rest of emerging
Asia. Bilateral trade deficits mean little in a world of mobile
capital and global production chains. Second, he says that
the argument that the increase in China's trade surplus is
due to an increase in cheap exports is unfounded. The reality
is that there has been a sharp slowdown in the real growth
of imports in China, from more than 30% in early 2004 to less
than 15% in 2006, as well as greater emphasis on trade in
heavy industrial materials and equipment. Finally, with the
US unemployment rate at an all-time low of 4.5%, Jeffrey dismisses
the third myth that China has taken away jobs from the US
workers. He acknowledges that "it is true that some workers
are harmed by trade with China, just as there are some losers
from all international trade. But the American economy overall
is better off, so in theory there is ample room to compensate
any losers".
Reference 1: Jeffrey, Stephen. "China
and US Trades: Lost in Translation". The Economist, 22
June 2007.
http://www.economist.com/finance/displaystory.cfm?story_id=9184053
I
I |
|
