I started to think about something after
reading Salazar’s
post ‘Do tariffs work?’
In 1978, Friedman claimed that lower the tariffs
toward Japan could benefit America. However, we saw something worse happened to
Japan. Besides the economical issues U.S government concerned about, I think they also wanted to weaken Japanese overall power.
Japan's inexpensive and good quality goods
earned a lot profit from the international trade. And they acted arrogant in
the world to buy assets, such as buying a symbol of the U.S. economy - the
Rockefeller Center. US government already felt the threat. To reverse this situation, the United States
and other Western countries asked Japan to appreciate their currency. The
Japanese had to promise because the U.S. military presence and political penetration.So
they signed Plaza Accord. Japanese economy was severely destroyed, the
so-called Lost Decade.
This is a really great historical example
for China. Japanese recession was because Yen appreciated from 250 to U.S. $ 1 into
$ 1.00 about 120. A direct result was Japan's exports greatly reduced while imports
surged. However, some
experts argue that the sharp appreciation of the yen provides Japanese a good
opportunity for large-scale expansion overseas, promote industrial
restructuring, and ultimately contribute to the healthy development of the Japanese
economy.
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But this fortunately consequence can never
happen to China. Chinese make livings by manufactory. The Industrial restructuring is not that
easy due to the current technology standard in
China(As we learned in Chapter 5 the effective R&D scientists ratio in China was just 7% ) Appreciation makes countless Chinese workers lose their jobs and may
lead to turmoil. As a result,Chinese government will try its best to keep the currency low.
This is a good argument in favor of China keeping their currency low. All we hear in the news (mainly the election) is that China is “cheating” and we need to stop them, but since China is majorly a manufacturing country, there isn’t much restructuring to be made like there was for Japan. I remember reading that Chinese currency had increased 11% since 2009, and that increase should be enough to ease US arguments because no one would benefit if a great appreciation in currency happens to create any turmoil in China.
ReplyDeleteIt seems like Japan 'bit off more than they could chew' so-to-speak. Greed never helps, and your example of what happened to Japan is proof to that. It definitely makes sense for China to keep its currency low because it needs to offset the production inefficiencies that stem from the fact that its manufacturing is relatively more labor-intensive rather than capital-intensive. I also agree with the experts you mentioned that were in favor of Japanese currency appreciation. This is because the Japanese would import more, and by being a large importer, Japan could then, with the optimal tariff, potentially improve its welfare in the short run as long as its exports are fairly inelastic. I also think that the U.S.'s decision to join together with other countries and ask Japan to appreciate its currency was definitely a better idea than imposing tariffs on Japanese imports, because cooperation is always better than retaliation in relation to international trade.
ReplyDeleteYes, I agree with you. The relationship between Sino-US economic is mutually beneficial to each other. It is the different economic structures that cause the imbalance rather than the RMB ratio.In addition, the U.S. restrictions on exports of high-tech products in China also contributed to the this issue.
ReplyDeleteChina is a developing country that every year we have to arrange 20millions of labors. If we appreciate RMB, the Chinese products will raise their price and it will shrink the export. That means lots of workers will lost their jobs. What’s more, the appreciation of RMB also reduces FDI because foreign investors need to pay more to build a factory in China now. The reduction of FDI will hinder the introduction of foreign advanced technology. What’s more, the bankruptcies of farms also lead to a reduction in government’s tax income. Eventually, the economy in China will collapse.
As far as I am concerned, China is a trade partner with USA since it is a labor intensive country and it export labor intensive goods. Even if China raises the price of products, that doesn’t mean the U.S. people don’t need labor intensive goods any more. America is a capital intensive country so that it doesn’t focus on producing such goods. As a result, Americans have to buy their clothes, stationeries from another labor intensive country such as India or Brazil. The appreciation of RMB cannot solve the problem of Sino-US trade imbalance.
It is very interesting to know more about the Plaza Accord and know more about the differences between China and Japan.
ReplyDeleteI agree with you.Though the appreciation of RMB is good for me to pay less tuition here, I agree that China should say no to appreciation since the RMB currency already increased enough to the extent. As Brian said , China is labor-intensive and produces low-quality productions. Additionally , many of their manufacturing industries operate with very thin margins, and workers don't earn more from the manufacturing industries. the appreciation will cause unemployment and the money in worker's pocket can buy less in China but more in Hongkong, Marco and U.S.
Now, more and more capital inflow to China. China is going to control the housing price in case it becomes a financial crisis.
What China should do is to transform and upgrade the manufacturing industries.