Cost Of Unleashing China’s Currency – William H. Overholt and Pieter Bottelier

A different take on exchange rate and trade deficit reality from two experts writing in the Christian Science Monitor:

It’s true that low-wage Chinese workers have taken jobs from Americans and that cheap Chinese imports have pumped up the trade deficit. But three other factors explain the state of US-Chinese trade:

•The low savings rate by Americans means the US will continue to have a large global trade deficit. Forcing Chinese currency appreciation will just shift the deficit to other countries.

•When Congress focuses on the currency issue, it is addressing the least important source of the US trade deficit.

•If Congress pressures the Inter-national Monetary Fund to censure China regarding its currency, the IMF might be obligated to censure the US for its domestic economic policies that are a more important cause of its global trade deficit. [Full Text]

[Overholt is director of the Center for Asia Pacific Policy at the RAND Corporation. Bottelier, ex-head of the World Bank’s resident mission in China, is a professor at John’s Hopkins.]

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