US vs. China – Currency Dispute

New York Times: Click Here

BBC News: Click Here

According to New York Times, the Obama administration is pressuring China to stop the devaluation of yuan, a policy that fuels its persistent trade gap with the United States.

Obama administration claims that China is artificially manipulating its currency to boost up its export to US. However, Chinese premier Wen Jiabao has denied that its currency is artificially devaluated.

Why are United States and China growling at each other for this issue? It is all about trade: Export and Import.

As many of you know, China is one of the biggest exporters. You may at least have a random product that is made from China. China gets all the ‘income’ or money from exporting its goods to other foreign countries, especially United States. So it is important for China to have yuan to USD exchange rate lower in order to export a lot of their stuffs to United States. It makes their products cheaper, so they gain a great price advantage over United States.

In United States point of view, this could be disturbing to them. Obama administration has promised to make like 2 million job places for its people. However, excessive import from China is one obstacle to their economic recovery. Also, United States have lots of exporting companies that are losing the price competition to Chinese exporting companies. So, Obama administration is pressuring China to raise their exchange rate. Obama administration also fears that China is stealing American jobs.

As for China, there is no way that they are going to reevaluate their currency even if they are artificially manipulating it. The export is the main steam engine of China’s economic development so it will most unlikely give up on the low yuan. For United States, their ‘precious’ money goes into Chinese government’s pocket, which they think it should be used in order to recover their economy. They are importing more than what they are exporting to China.

In conclusion, I don’t think China will ever reevaluate its currency even if they are actually manipulating it. This dispute is just aggravating the US-Chinese relationship.

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