A hot
topic in the debate on Tuesday night, and on the campaign trail, is the US
trade relations with China. Romney
accused Obama of not going through with what he mentioned about trade in China
on the campaign trail and that he essentially gave the Chinese the green light
to continue manipulating their currency and distort fair
trade. The accusations on China, from both parties are that China is purposely
weakening the renminbi to make the price of its exports relatively less
expensive so more countries will buy from them. This has contributed to China’s
current account surplus (exports >imports).
Romney insists that on his first day in office he is going to
call China out on purposely weakening its currency which would begin a series
of bilateral
consultations. If China does not
make a change, Romney plans to impose duties on Chinese imports. This may seem like a way to tame China’s
cheating, but when reflecting on 2009 when the Commerce Department imposed a
duty of Chinese imports, it conserved up to 1,200 American jobs, but it cost
consumers $1.1 billion in higher-priced
goods. China then responded with an
import on American goods. Specifically,
the imports of American chicken parts and that in turn cost poultry producers
approximately $1 billion. The
repercussions of the duties were much larger than the jobs that were
saved. Going through another cycle of
these results does not seem to be in the best interest of the US.
Nowhere,
in any of the chapters we have covered thus far, have we had to discuss the
policies in the “foreign” country while determining the “home” country’s
equilibrium level of production. When
considering the US/China trade relationship, the US should ensure it is
producing the goods in which it has the competitive advantage and importing
those which they have a disadvantage.
While China has already been labeled as having their currency moderately
undervalued by the I.M.F., imposing duties on Chinese goods would not be
the way to solve any problems the US has with China’s policies.
This is a very interesting and touchy subject to introduce I believe because there has been so much debate over the amount of exports China's supplies to the U.S. and how jobs are being shipped overseas. I think that it is important for the issue of China weakening their currency should be brought to attention, however if it in turn hurts the U.S. Economy even more then we should not fight against them over the issue. With China being a labor abundant country there the majority of production should be done through China and as Jenn said, if that production comes to the U.S. prices will increase dramatically.
ReplyDeleteI agree that China weakening their currency should not be such a worry for the United States. As was stated above; in the past, getting China to strengthen their currency has only proved to hurt the United States for the most part (costing a lot more than it was worth). We also discussed in class that China may not be benefiting from what they are doing as much as we believe. Because they are weakening their currency and selling their exports for less does not mean they are making more money. Weakening their currency means that when they buy imports it costs them more of their renminbi to do so. China is also getting less for every item they sell, meaning they need to sell more to make up the difference. The question is; can China make up the difference of what they lose by selling enough exports? This may not be a question we can answer, but it is one that would need to be figured out if we were to know whether China was truly "cheating" or not.
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