China's Currency Hurting the U.S. Economy?

     In the past few weeks, China has become a major issue for U.S. politics. China has been accused by many people, most notably the Republican presidential candidate Mitt Romney, of being a "currency manipulator," which means that they have been keeping their currency, the yuan, artificially low by "hoarding" foreign reserves. By doing this, it gives Chinese exporters an advantage over competitors. Basically, China is trying to control the exchange rate by selling its own currency while making large purchases of foreign currencies, including the U.S. dollar.

     China's manipulation of the exchange rate has many negative effects on U.S. economy. First off, it distorts capital flows, which has the ability to impact labor markets and trade throughout our country and other countries around the world. In addition, it provides advantages to China. By manipulating the yuan's true value by keeping it low compared to the dollar, China's goods look much more attractive to American consumers. In addition, this makes products made in the United States much more expensive for consumers in China. All of this has allowed China's economy, which is led by its exports, to expand at quick rates.

     In the past, China's currency was pegged to the U.S. dollar, which meant that the two currencies moved together. However, in 2010, Beijing loosened the link between the currencies, which has allowed the yuan to appreciate by about 10%. What is confusing about this situation is that many analysts feel that the currency should be much stronger based on how China is currently doing. In response to all of this, the United States hasn't really done much. The government had promised to not purposely weaken the dollar, but the way that they are flooding the economy with printed money is basically doing what they didn't want to do. If elected president, Mitt Romney plans to label China as a currency manipulator, which would mainly be seen as a "symbolic" gesture. This move could help create talks between the United States and China, but nothing immediate has been planned. However, various economists are worried that Romney's second part of the plan, which is to enforce tariffs and duties on China if they don't begin to float their currency, could create a trade war between the two countries, which will be devastating for the global economy.

     In my opinion, I think that the U.S. government needs to take a firm stand and fight back in this critical situation. We need to show that our country does not take currency manipulators lightly and that we will do anything it takes to bring back an even playing field for both countries. Yes, it may be a huge risk if the feared trade war actually results from these actions, but I think it would be worth it if we could gain some diplomatic negotiations with China. In a time where the global economy isn't too strong, we need to be working together with other countries in order to restore prosperity throughout the world. This can't be achieved though if one country is trying to find ways to gain economic advantages, which is why it is imperative that the United States takes action and gets this whole situation settled out.

Articles Referenced 

http://money.cnn.com/2012/10/21/news/economy/china-currency-manipulation/index.html?iid=HP_LN