The latest offering on the campaign trail from the right appears to be a surfeit of China Bashing — with another First Day item added to Governor Romney’s to-do list: Declare China a currency manipulator. Sounds rather ‘forceful’ doesn’t it? Sounds all ‘leadershippy?” It’s a bad idea and here’s why — from a bastion of conservative print, Barron’s:
“To declare China officially a currency manipulator risks launching the 21st century equivalent of the Smoot-Hawley protective tariff passed in 1929, one of the key factors that made the Great Depression “great” in the worst sense of the word.”
In other words, if you advocate protectionism then a declaration of China as a currency manipulator is your policy of choice. Why? Because the Chinese, rather than allowing surplus dollars from its exports to the U.S. to push up the value of the yuan, buys the dollars and re-invests them in the U.S. When did Governor Romney decide that foreign investment in the U.S. was a bad idea?
Secondly, it’s not that the yuan isn’t appreciating. In fact, the value is going up. The Chinese currency is currently trading at 6.254500 [CET] as of October 21, 2012. There’s a graph indicating the trend upward for American currency in the past year:
Click on the graphic for additional information. How about a two year perspective? What would that illustrate? There’s also a graph showing the appreciation of the Chinese currency relative to the American dollar for the last two years.
Perhaps someone in the Romney campaign would care to explain WHY, when the yuan is appreciating relative to the American dollar — and has been generally for the past two years — it’s time to declare China a nefarious currency manipulator? This makes absolutely no sense whatsoever, unless Barron’s is correct, and the Governor wants to risk a Smoot-Hawley Tariff protectionist brawl in foreign trade.
Yes, the Chinese have the reins on the value of their yuan, but as the second graph illustrates they’ve been allowing it to steadily appreciate relative to the value of the dollar. When did Governor Romney decide this was an unhelpful trend?
There’s another problem with China Bashing as it is currently being practiced. They are also importers. The following graph from FRED (Federal Reserve) shows the increase in Chinese imports — which in case we’d forgotten means American JOBS.
So, when did Governor Romney decide that facilitating policies intended to increase our exports TO China was a bad idea? Returning to the issue of the relative value of the two currencies, the yuan and the dollar, for a moment — the chart above doesn’t indicate that the yuan is as significantly undervalued as previously believed.
One writer at Forbes opines that the declaration of China as a currency manipulator will be on Governor Romney’s list of things to drop like a hot rock on his Day One. It probably wouldn’t be a bad idea to drop it immediately, and to release the hot air from this thoroughly political hot air balloon.