China devalues its currency…again
In response to slower than expected growth, tumbling stock prices, and weak domestic consumption, China has pursued an old strategy which has served them well in the past. That practice is intentionally altering the value of their currency relative to global exchange rates, a.k.a. currency manipulation.
Why is this beneficial to China? By reducing the value of their currency, China effectively reduces the costs of everything produced in their country. This means that Chinese made products become even cheaper on the global market while products made in other countries, like America, become more expensive by comparison.
Here are five reasons why Americans should be very concerned:
- The practice of currency manipulation is the key driver of our massive trade deficit with China. The People’s Bank of China keeps tight control over the value of the yuan relative to the dollar and adjusts that value daily, in order to maintain its desired exchange rate which is advantageous to Chinese exports but discriminating towards American products. This hurts our exports and restricts an enormous market from our businesses.
- Currency manipulation allows China to maintain a competitive advantage over American products. Competition is nearly impossible for American companies that play by the rules. China has used this practice to undermine the foundations of internationally recognized standards in global trade.
- Currency manipulation has cost the United States 5.8 million jobs, according to the Economic Policy Institute. China’s currency practices directly relate to the slow U.S. economic recovery.
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China’s currency manipulation is in direct violation of internationally recognized standards constituting illegal intervention. During Treasury Secretary Jack Lew’s visit to China earlier this year, Chinese officials committed to reduce its foreign exchange intervention. However, due to a lack of pressure from America, clearly China has no plans of altering their course.
Photo Credit Keith - Most significantly, if there are no repercussions for China’s use of these unfair tactics, what is to stop the 12 nations included the Trans-Pacific Partnership? The issue of currency manipulation has yet to be addressed in a serious and enforceable manner during negotiations. If these nations behave in a similar manner, the damage to U.S. manufacturing would be incalculable.
This latest action undertaken by China reflects a blatant disregard for global trade norms and can be viewed as an affront to their most significant trade partner, the United States. The Obama administration has had 13 separate opportunities to label China as a currency manipulator but has failed to do so.