Lost In Translation

As part of an ongoing blame game between China and the US, Washington officials want reevaluation of the yuan. However, China actually could gain the most from any reevaluation. First, the yuan may not be undervalued all that much. China’s large bilateral trade surplus reflects a changing supply chain in Asia. The US used to buy goods from other Asian nations, but today China imports goods from these countries and exports finished products to the US. If one takes such changes into account, the US bilateral deficit with China would appear to be half of the present figure. Second, while many US officials assume that the growth in the number of cheap exports fuels China’s trade surplus, the main factor behind the increase is, in fact, a decline in Chinese imports of heavy industrial materials and equipment. Third, Chinese imports may not cause much direct harm to the US economy. US-China trade may result in job loss for some individual workers, but has little impact on the total number of jobs available. Finally, increasing the yuan’s value would have little impact on the US’s deficit because China and the US have little overlap in goods produced. If Chinese imports were curtailed, the US would have to find other sources rather than manufacture replacements on their own. This article in The Economist urges the US and China to come to terms with each other on crucial economic issues, or else the entire world will pay a price. – YaleGlobal