Joseph A. Massey and Lee M. Sands: The Yen’s Lesson for the Yuan

In an op-ed in the New York Times, Joseph A. Massey and Lee M. Sands look at Japanese history to offer advice for the U.S. in dealing with tensions over China’s currency rate:

Despite its decision to let the yuan rise 21 percent against the dollar between 2005 and 2008, China has remained a favorite target of Congress. Democrats and Republicans have consistently called for punitive action against China, including sanctions on imports, unless it completely de-links the two currencies.

Lost in the noise, however, is the question of whether de-linkage would actually have any effect on the trade deficit. On this, the United States’ 40-year history of pressuring Japan to let the yen appreciate against the dollar is instructive. It indicates that de-linking the yuan would make barely a dent in America’s trade deficit. Luckily, this history also points to a different, more effective way for the United States to benefit from China’s economic growth.

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