There has been a raging debate as to whether the US should declare China a currency manipulator. The debate has resulted from Beijing’s behavior in international trade that seeks to dominate the international market. China intentionally maintains its exchange rate lower than that of the United States to make its products cheaper than products of the US (Brown par2). This gives them an unfair trade advantage.
The debate involves two sides: opponents and proponents. Opponents claim that declaring China a currency manipulator will harm relations between the two countries and create a trade war (Klein par3). On the other hand, proponents claim that China should be declared a currency manipulator because it gains trade advantage over other countries using dubious means (Brown par3). The US should declare China a currency manipulator because it uses illegal, unethical, and unfair means to gain trade advantage over other countries.
First, China should be declared a currency manipulator because it uses unethical means to gain trade advantage (Lazear par4). Laws of the United States give power to the Treasury Department to identify countries that use dubious means to manipulate their currencies in order to gain trade advantage.
The Chinese currency is cheaper compared to the American currency. This gives China trade advantage over the US. It intentionally keeps its currency value lower than that of the US dollar (Klein par5). This is unethical because the value of a country’s currency should be dictated by trade activities on the international market (Lazear par4). A low exchange rate enables China to produce goods cheaply and sell them at a higher price against the American dollar that is more expensive.
American companies cannot compete with Chinese companies fairly because their exchange rates vary significantly (Lazear par5). As such, costs of production are higher in America. China has dominated American merchandise markets with cheap goods that make it difficult for American companies to sell their products. Entry into American markets has been described as a strategy to keep exchange rate low and block its currency from rising to a market-determined value (Lazear par7).
Secondly, China should be declared a currency manipulator because its low exchange rate has adverse effects on economy of the United States (Roach par3). Legislative action is necessary on China because America’s trade deficit is enlarging mainly due to economic pressure exerted on jobs and national income.
Currency manipulation has led to loss of market share by the United States (Lazear par5). This has affected companies, workers, and reduced availability of jobs. Research has shown that trade deficit has averaged at a value of 4.4 percent of the total GDP, a figure that has not changed for the last eight years (Roach par5). China is responsible for increase in trade deficit. It presents a serious economic threat to the US because it does not facilitate a level playing ground for trade on the international market.
Thirdly, China manipulation of their exchange rate is a threat to the global economy (Roach par6). It is therefore in the interest of the world to adjust its rate to a fair market value. Global trade imbalance between countries is a threat to stability and sustenance of global economy. Many economists have argued that China’s saving glut is a major source of global economic instability.
Opponents argue that China should not be declared currency manipulator because such a decision will cause trade wars and strain the relationship between the two countries. They argue that China’s actions are not to blame for US’s widening trade deficit (Wu par4). The main cause of the trade deficit is a shortfall of net national saving rate. The rate has deteriorated since 2008 and has not shown any signs of improvement.
They also refute claims that China manipulates their exchange rate because their currency has risen by 31.4 percent since 2005 (Lazear par8). This increase is more than is required by the Schumer-Graham bill. China is cautious because a sharp increase in the value of its currency might have adverse effects on its economy (Lazear par9). Furthermore, it has shown willingness to bring its currency to fair market values gradually.
The debate on whether the US should declare China a currency manipulator has been ongoing for a long time. China has been accused of manipulating its exchange rate in order to gain trade advantage. Currency manipulation is a threat to the economy of the United States and the global economy because it leads to loss of jobs and poor performance of companies.
It has led to loss of a significant market share by the US. Opponents claim that China is not the cause of the widening trade deficit but a declining national saving culture. They also argue that China has shown willingness to adjust its currency value because its value has increased by 31.5 percent since 2005. Currency manipulation is a threat to global economy and the economy of the US. Therefore, China should be declared a currency manipulator by the United States.
Brown, S. Currency Manipulation Gives Chinese an Unfair Advantage. 2012. Web.
Klein, E. Five Facts You Need to Know About China’s Currency Manipulation. 2012. Web.
Lazear, E. Chinese Currency Manipulation is Not the Problem. 2013. Web.
Roach, S. China’s Currency Manipulation: A Policy Debate. 2012. Web.
Wu, M. China’s Currency is not Our Problem. 2011. Web.