Suddenly we are hearing talk of Chinese manipulation of their currency. I think the hype is preposterous, and I am hoping that I can get a straight story.
What I know is that China has refused, for decades, to let its currency float against the Dollar. The value of the Yuan is basically pegged to the dollar. The exchange rate never changes. No matter where the American dollar goes relative to other currencies (clear enough?). Suddenly, this has been called 'manipulation'. Why? because some politicians tied to the American textile industry are crying foul about recent trade agreements that allow more Chinese clothing to come to the US. They want the Chinese Yuan to appreciate to the point at which the price of a t-shirt from China makes consumers buy American? Fat chance. I don't know about you, but I have no idea where my clothing comes from. The status of American clothing comes 98.5% from the brand of the store you buy it from, not the country of its manufacture or origin.
Already, the Chinese have increased internal tarriffs on textile products to be exported to the US in response to American pressure. That suits Chinese officials just fine. They line their pockets with that tax and Americans still buy more cheap products. What are we talking about? A dollar?
Here's something else I know. Chinese cotton and silk are the raw materials that are shipped outside of China, mostly to Nigeria and other West African countries, to be made into fabric and dyed. The fabric is then shipped back to China and sewn into clothing. So anybody concerned should understand that China is not single-handedly undermining free trade, but that they already are a player in a global market. It's not just China involved in 'Chinese' textiles.
It seems to me that the net result of floating the Chinese currency is going to be felt in a huge number of other ways and that the political pressure brought to bear for the sake of the trade deficity will have unintended consequences elsewhere. The trade deficit isn't the only consideration here, but the billions in Treasury bonds held by the Chinese. Already the (NPR) news on this story makes it sound as if something inevitably has to happen soon and that the Congressional rumblings on this matter must be attended.
How shortsighted can we be? For t-shirts.