U.S. - China Foreign & Global Trade Policies U.S Trade deficit and Chinas Currency Policy

U.S. - China Foreign & Global Trade Policies

—— U.S Trade deficit and China’s Currency Policy

• 2012-CRS-China-U.S. Trade Issues, http://www.fas.org/sgp/crs/row/RL33536.pdf

• 2011-CRS-China's Currency Police-An Analysis of the Economic Issues, www.fas.org/sgp/crs/row/RS21625.pdf

• 2013-CRS-International Trade and Finance-Key Policy Issues for the 113th Congress, https://www.fas.org/sgp/crs/misc/R42882.pdf

• 2013-USCBC-China and the US Economy-Advancing a Winning Trade Agenda, https://www.uschina.org/info/trade-agenda/2013/uscbc-trade-agenda-report.pdf

• EDWARD P. LAZEAR, Chinese 'Currency Manipulation' Is Not the Problem, http://online.wsj.com/article

• /SB10001424127887323320404578213203581231448.html

Recent Research Studies & Sources … Links

• 2011-CRS-China's Currency Police-An Analysis of the Economic Issues , www.fas.org/sgp/crs/row/RS21625.pdf

• 2012-CRS-U.S. International Trade-Trends and Forecasts, www.fas.org/sgp/crs/misc/RL33577.pdf

• 2013-CRS-Trade Primer-Qs and As on Trade Concepts, www.fas.org/sgp/crs/misc/RL33944.pdf

• 2010-CRS-The U.S. Trade Deficit: Causes, Consequences, and Policy Options. http://www.dtic.mil/cgi-bin/GetTRDoc?AD=ADA525490

• Joseph Gagnon, Combating Widespread Currency Manipulation. http://www.iie.com/publications/pb/pb12-19.pdf

• Overview• What is currency manipulation? Is China a currency manipulator?• If so, how much is the RMB undervalued?• Is the currency manipulation leading to the trade deficit?

• How to deal with exchange rate from the perspective of trade policies

Overview

• The U.S. trade deficit with China has surged over the past

two decades.

2012-CRS-China-U.S. Trade Issues

Overview

• Meanwhile, China has maintained a policy of intervening in currency markets to limit the appreciation of its currency, RMB, against the U.S. dollar and other currencies. That’s so called “currency intervention or manipulation”.

China's Currency Police-An Analysis of the Economic Issues - CRS 2011

Overview

• Critics contend that the RMB is significantly undervalued against the dollar and that this has been a major contributor to the large annual U.S. trade deficits with China and the loss of U.S. jobs in recent years.

China's Currency Police-An Analysis of the Economic Issues - CRS 2011 http://www.nihao-salam.com/article-detail.php?id=MTgx

What is currency manipulation? Is China a currency manipulator?

• Indeed it is

• —as are all countries that maintain a fixed or a close-to-fixed ratio of their currency relative to the dollar, euro or gold.

EDWARD P. ,Chinese 'Currency Manipulation' Is Not the Problemhttp://online.wsj.com/article/SB10001424127887323320404578213203581231448.html

Joseph Gagnon, Combating Widespread Currency Manipulation.

If so, how much is the RMB undervalued?

• Unfortunately, there is no universally-accepted methodology for determining a country’s real market exchange rate.

• Thus, there are numerous estimates of the RMB’s undervaluation against the dollar, although the results vary widely depending on the methodologies and various assumptions used.

China's Currency Police-An Analysis of the Economic Issues - CRS 2011

If so, how much is the RMB undervalued?

• Relatively recent estimates include:

• (1)12%(December 2009)

• (2) 25%(December 2009)

• (3) 30%(April 2010)

• (4) 40.2% (January 2010), 24.2% (June 2010), 28.4% (April 2011), and 23.5% (November 2011)

• (6) 50%(October 2009)

China's Currency Police-An Analysis of the Economic Issues - CRS 2011

If so, How much is the RMB undervalued?

• Because there is no universally-accepted methodology, and since estimates of China’s currency valuation differ so significantly, their usefulness in trade policymaking or legislation that would seek to offset the benefit (“subsidy”) conferred by the RMB’s undervaluation, such as in U.S. anti-dumping and countervailing measures, is being questioned.

China's Currency Police-An Analysis of the Economic Issues - CRS 2011

Is the currency manipulation leading to the trade deficit?

• The exchange rate’s impact on the US trade balance is minimal, or not directly related, as the chart below shows.

2013-China and the US Economy-Advancing a Winning Trade Agenda

Is the currency manipulation leading to the trade deficit?

• The U.S. also have trade surplus with those whose currency is undervalued.

2012-CRS-U.S. International Trade-Trends and ForecastsChina's Currency Police-An Analysis of the Economic Issues - CRS 2011

How to deal with exchange rate from the perspective of trade policies?

• Keep doing researches and try to find a more accurately and universally-accepted methodology in determining a country’s real market exchange rate.

• Keep negotiating with Chinese government. That works.

• Focusing on trade policy to reduce trade deficit, instead of currency policy.

• Thank you!