Whither The Yuan

The US expressed “real concern” today about the value of the Chinese yuan. The Administration is getting pressure from Congress, unions, and some American companies to force the People’s Republic to allow the yuan to “float” so that its value can be determined by the markets. That should allow the price of US goods to be more competitive. Unfortunately, China knows that the yuan’s value gives the country an advantage when selling its goods abroad, And, while this is true, the central communist government on the mainland will not admit is.

Rather, China has accused the US of manipulating its currency to help the American trade situation. That position is implausible, but China has not let implausibility get in the way of its claims about international trade before. The world’s most populous nation have even turned a deaf ear to IMF suggestions that the current price of the yuan is destructive to the global trade balance.

China has made the case to the court of public opinion that a change in the method of yuan valuation would hurt the nation’s manufacturing sector and put many Chinese out of work. That fails to acknowledge the number of American and Europeans who have probably lost their jobs due to currency-related trade imbalances.

The US is threatening to label China as a “currency manipulator.” China probably does not care. As the supplier of cheap goods to the developed world and with currency reserves of over $2 trillion, China can wait out the West and build a fortress around its economy through another stimulus package similar to the $585 billion one it began last year. China has capital that other large nations do not. It is the low-cost supplier that retailers in America, the UK, the EU, and Japan need. In short, it holds all the aces.

Douglas A. McIntyre