Yglesias gets it wrong on China’s currency manipulation
In a recent post on Slate’s Moneybox blog, Matthew Yglesias tells readers that it's time we stop worrying about China’s undervalued yuan:
“Americans have been yacking at each other about the US-China exchange rate for so long, that sometimes we forget that things change even without dramatic occurrences in American politics. For example, China's trade surplus is shrinking and "after adjusting for inflation, the renminbi appreciated 12 percent against the dollar in the last 18 months."
To the best of my knowledge, the Treasury Department continues to work on this more-or-less behind the scenes, but the bottom line is that events are moving in the direction the U.S. favors so there simply isn't a ton to be done at this point. “
The Yglesias analysis misses some key points. If you take into consideration relative rates of growth, the Yuan is still 23.5% undervalued against the dollar, and there is no guarantee China will keep heading in the right direction. One of the most dramatic rises in the Yuan last year came RIGHT BEFORE the Senate vote. So, American politics does matter. Here’s a letter we sent to Treasury. There is a lot that could—and must—be done.
Even more significantly, the U.S. trade deficit with China is rising, not "shrinking," as Yglesias believes. In fact, the U.S. trade deficit with China is projected to reach a new record for 2011.
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