How China’s Currency Manipulation Affects Us Economy

Topics: Central bank, Inflation, Monetary policy Pages: 3 (833 words) Published: March 25, 2012
How China’s Currency Manipulation Affects US Economy

Howe School of Technology Management
Principles of Economics

How China’s Currency Manipulation Affects US Economy

Currency intervention is the action of one or more governments, central banks, or speculators that increases or reduces the value of a particular currency against another currency – this is according to Wikipedia. From January until October in 2010 imports from China to the United States this year were $299,026.0 million and only $72,276.2 million in exports to China, leaving a U.S. trade deficit of -226,749.8 million - this is according to the U.S Census Bureau U.S Foreign Trade Statistics. Here we can examine that Chinese imports to the United States were too high which makes U.S. Gross Domestic Profit (GDP) shrink because imports are subtracted to the Gross Domestic Profit. This trade deficit causes damage to the United States manufacturers and destroys jobs. Chinese products are very attractive because their low labor cost. When U.S. people purchase Chinese manufacturing goods, their manufactures are compensated in dollars which are placed in a United States bank account. Then, the Chinese need to exchange the dollars to Yuan and as a result via their banks they sell the dollars to the Chinese Central Bank which is known as the People’s Bank of China. Given that the U.S trade with China does not balance, the result will be a shortage of the Yuan and a surplus of the U.S dollar in the People’s Bank of China or Central Bank. In those circumstances, according to the rules of international trade the People’s Bank of China should sell the dollar on global currency market and buy the Yuan in exchange which will result on weakening the U.S. dollar and strengthening the Chinese Yuan, that way equilibrium works to re-established and the trade gap closes. This eventually will decrease Chinese exports but what we are seeing is that the Chinese Central...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about China's Threat to the Us Economy
  • How Does China's Growth Affect US Workers Essay
  • How Trade Affect the Economy Essay
  • Essay about How Technology Affect Us
  • Essay on How Effects Affects Us
  • Us Economy Essay
  • Current State Of US Economy Essay
  • Economics

Become a StudyMode Member

Sign Up - It's Free