"Washingtonomics" and the Irrational American Buyer
In Forbes, Baizhu Chen of USC’s Marshall School of Business questions the logic of Americans insisting on paying higher prices for Chinese goods:
The argument is that this is good for the U.S. economy because cheap Chinese products take away American jobs. Really? A bit of history might help. Thirty years ago, Japan was accused of taking away American jobs, because of the undervalued Japanese yen. The yen has since appreciated from 250 yen per dollar to 80 yen today. Jobs have not returned.
Three years ago, right after the U.S. presidential election, one American dollar could buy approximately 7.5 Chinese renminbi. Today, it gets less than 6.4. If we wanted to punish China for taking away our jobs with its undervalued currency, we should have done so three years ago, when the renminbi was 15% cheaper than today. Why did we have to wait three years, as the renminbi became more expensive, to pass a bill at a time when the next election is entering campaign stage? That is election year politics, plain and simple.
Our senators tell us that making Chinese currency more expensive will be good for China. China currently consumes only 35% of the goods and services it produces annually, while America consumes more than 70%t of U.S. gross domestic product. Forcing China to appreciate its currency, the argument runs, will enable the Chinese to consume more beef, corn, and gasoline, and the Chinese will be happier. To be honest, I am confused here. I thought elected officials were supposed to represent my interests and the interests of millions of American families trying to make ends meet by relying on inexpensive Chinese products. I didn’t know U.S. Senators were supposed to represent the interests of Chinese consumers. It is up to the Chinese government to make the Chinese happier. When billions of Chinese jump forcefully onto the consumption wagon, the prices of goods will become higher for struggling American families. Senators, be careful of what you wish for.
See previous coverage, via CDT, of the proposed U.S. law to impose tariffs on Chinese goods, Chinese efforts to fight the bill on U.S. soil, and the battle over China’s currency valuation.