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A Fulbright Fellow on China’s Currency Challenges

18 Oct 2010

Nathan Bullock is a Fulbright Fellow based in Singapore, researching human and cultural geography, urbanization, and critical studies. Read about his adventures at East Coast Elitist.

The Chinese yuan, or renminbi (RMB), has long been the subject of vicious attacks from developed countries who lament the advantage it gives the Chinese market in seeking out foreign investors who can get more return on investment with such an artificial exchange rate working in their favor.

Politicians in the U.S. are always eager to blame China for the loss of manufacturing and textile jobs in their states, although they are less often able to enact or verbalize what solutions might be available. President Obama, speaking in Iowa last month, blamed the yuan as “a contributing factor” to the enormous trade deficit between the two countries.

Recently, however, the U.S. House of Representatives voted 348-79 to pass a bill that allows the U.S.F.G. to place a tariff on any country that undervalues its currency. While this bill would apply to any country that is found guilty, it is specifically targeting the PRC. Speaker of the House Nancy Pelosi explained, “We do this because one million American jobs could be created if the Chinese government took its thumb off the scales.”

Other countries in Asia also are likely to welcome a more free-floating yuan. According to the WSJ, Singaporean Prime Minsiter Lee Hsien Loong noted that it would be “helpful” if China allowed for the currency’s appreciation, but he did not outright embrace the tactic of pressure from foreign governments.

China responded immediately through its commerce ministry spokesman, Yao Jin, who denied the accusation: “China has never undervalued its currency in order to gain a competitive advantage.” He also added that “it was inconsistent with relevant rules of the World Trade Organisation.” Vocal opposition also came from a few in Congress, including Representative Kevin Brady of Texas who felt the measures would do more harm than good.

Chairman of the American Chamber of Commerce in China, John Watkins, sided with the Chinese government by expressing fears that the legislation would cost American jobs.

Representative Tim Ryan of Ohio, a co-author of the bill, aptly summarized his and many Americans’ sentiments characterized by frustrated from years of inaction from American administrations and the Chinese Central Bank: “If this risks upsetting the People’s Republic of China, so be it.”

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