China's Exchange Rate
China 's Exchange Rate Peg concerning Trade Policy with U.S.
Overview of the Problem
The U.S. and China trade imbalance continue to be on the rise. U.S. manufacturing firms and workers voiced complaints over the competitive challenges posed by cheap Chinese imports. China 's trade policy of pegging its currency, the yuan, to the U.S. dollar has enabled an unfair trade advantage according to the U.S. Some have gone as far as calling it "currency manipulation." The outcome has been loss of U.S. manufacturing jobs and a U.S. trade deficit (Labonte & Morrison, 2005).
Political Pressure
According to the Bush Administration, China 's undervalued currency has contributed to America 's record $16 billion trade deficit with China last year and is responsible for the loss of 3 million U.S. manufacturing jobs since 2000. The G-7 discussions addressed the issue, but opinions differed. China felt that linkage to the U.S. dollar was a necessity. Expressing that currency volatility could disrupt the nation 's fragile banking system. The U.S. has placed political pressure on China by introducing bills to both the House and Senate to impose economic sanctions on China, if it does not move to a floating currency, such as 27.5 percent across-the-board tariffs on Chinese goods coming into the U.S. until the Chinese change it 's currency regime (Fiscal Study, 2005). China, a major rapidly growing economy, has a per capita income of only about $1,000 per year and with financial, legal and regulatory systems in desperate need of reform. For China to obtain a developed economy status they will have to address how they peg the yuan (Labonte & Morrison, 2005).
China 's Exchange Rate Peg
Chinese for ten years now have maintained a fixed exchange rate for their currency, the yuan, relative to the dollar. The rate has been pegged at about 8.28 yuan/dollar for the entire period. What has resulted from this is that when the dollar has appreciated or depreciated in value relative
Overview of the Problem
The U.S. and China trade imbalance continue to be on the rise. U.S. manufacturing firms and workers voiced complaints over the competitive challenges posed by cheap Chinese imports. China 's trade policy of pegging its currency, the yuan, to the U.S. dollar has enabled an unfair trade advantage according to the U.S. Some have gone as far as calling it "currency manipulation." The outcome has been loss of U.S. manufacturing jobs and a U.S. trade deficit (Labonte & Morrison, 2005).
Political Pressure
According to the Bush Administration, China 's undervalued currency has contributed to America 's record $16 billion trade deficit with China last year and is responsible for the loss of 3 million U.S. manufacturing jobs since 2000. The G-7 discussions addressed the issue, but opinions differed. China felt that linkage to the U.S. dollar was a necessity. Expressing that currency volatility could disrupt the nation 's fragile banking system. The U.S. has placed political pressure on China by introducing bills to both the House and Senate to impose economic sanctions on China, if it does not move to a floating currency, such as 27.5 percent across-the-board tariffs on Chinese goods coming into the U.S. until the Chinese change it 's currency regime (Fiscal Study, 2005). China, a major rapidly growing economy, has a per capita income of only about $1,000 per year and with financial, legal and regulatory systems in desperate need of reform. For China to obtain a developed economy status they will have to address how they peg the yuan (Labonte & Morrison, 2005).
China 's Exchange Rate Peg
Chinese for ten years now have maintained a fixed exchange rate for their currency, the yuan, relative to the dollar. The rate has been pegged at about 8.28 yuan/dollar for the entire period. What has resulted from this is that when the dollar has appreciated or depreciated in value relative
References: BBC News. (2005, July 22). China launches currency shake-up. Retrieved July 21, 2005 from http://news.bbc.co.uk/1/hi/business/4703477.stm CNN Money. (2005, July 21). China revalues yuan. Retrieved July 21, 2005 from http://money.cnn.com/2005/07/21/news/international/china_yuan/ Fiscal Study. (2005, April 15). U.S. Pushes China on Its Exchange Rate! Retrieved July 21, 2005 from http://www.fiscalstudy.com/2005-global-news-flash/0415.html Kwan, C.H. (2004, November) The Plunge in the Dollar Puts Upward Pressure on the Yuan – Should China Continue to Peg to the Dollar. China in Transition. Retrieved July 21, 2005, from http://www.rieti.go.jp/en/china/04111602.html Labonte, M., Morrison W. (2005, May 10). China 's Exchange Rate Peg: Economic Issues and Options for U.S. Trade Policy. CRS Report for Congress. Richenbacher K. (2004) China 's Trade Statistics. The Daily Reckoning. U.S.-China Economic and Security Review Commission. (2005, May). http://www.uscc.gov/researchpapers/2005/05_05_09currency_exchange_letter.html Wermuth, D. (2005, Spring) The Case for Gradualism. International Economy, 34-68.