China's exchange rate shenanigans have cost America jobs

Posted by mmcmullan on 03/18/2014

The Wall Street Journal ran a story recently on the recent decline in the value of the yuan, China’s currency. Being a Wall Street Journal article, it treats with chief concern the amount of money that currency speculators – both large corporations and the spare, incredibly wealthy individual who have bet on the yuan’s slow-as-molasses-but-steady appreciation – stand to lose by sudden drops in the yuan’s value:

While the recent declines likely aren't big enough to trigger a stampede out of the yuan, the added volatility in the exchange rate may give some investors pause.

The wider trading band also means there is more scope now for the yuan to depreciate on a day-to-day basis, which makes the yuan less of a guaranteed source of returns for many investors.

Yes, it’s a real bummer for those speculators. But anyway, way deep down in the story, delivered as almost an aside, is some truth that we found particularly interesting:

For some companies, losses on yuan bets will be offset by the benefits of a weaker currency, including lower operating costs and increased demand for their exports.

"A weaker yuan helps China’s exporters?"  Then the yuan’s sudden drop couldn’t possibly have anything to do with the rare trade deficit that China ran last month, could it?

Whether it does or not, all of these recent developments confirm that, by simple definition, China manipulates its currency, which remains undervalued. It manipulates its currency to build large trade surpluses with its largest trading partner. And those trade deficits have cost its larger trading partner millions of jobs.

That very large trading partner, meanwhile, could create millions of jobs by passing legislation that would allow currency manipulation to be treated in trade cases like the subsidy that it is.

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