CWT Blog

In the Debate on Chinese Currency, Wall Street's Voice Resounds in Congress

Posted by Consumers for World Trade Fri, 17 Aug 2007 18:42:00 GMT

August 17, 2007 - Legislation has been working its way through both the House and Senate recently with the goal of forcing China to revalue its currency, the Yuan. Lawmakers and interest groups have been loudly accusing the Chinese government of grossly undervaluing its currency, thereby contributing to America's trade deficit with the People's Republic. Their argument is that if the Yuan is artificially cheap, Chinese producers have an unfair advantage in exporting products that are cheap in the U.S., while American firms cannot sell their comparatively more expensive goods in China. However, as is often the case in Washington, some of the outside voices calling for Congress to punish China have more than America's best economic interests at heart.

A recent article on the Washington Post's website by Albert Keidel, former Acting Director of the Office of East Asian Nations at the Treasury Department, sheds light on self-serving interests in the financial sector that are advocating for Chinese currency-change legislation. Keidel explains that American investors and speculators bought up Yuan-based financial assets following the most recent economic recession and corresponding drops in American interest rates several years ago; Chinese financial assets were paying higher interest at the time. However, fast-forward to the present and the motives of these speculators become quite clear. If America was somehow able to force China into letting its currency appreciate, as some proposed legislation aims to do, those individuals and firms holding Yuan-based financial assets would see their assets' value skyrocket. Think of it this way - Say you bought a Chinese asset, valued in Yuan, for $100, and then Congress enacted a bill that caused the Chinese currency to appreciate by 40%: your asset would be worth $140.

For his part, Keidel does not believe that any legislation will be able to force China to revalue its currency, and that even if it were possible, a more valuable Chinese Yuan would not change America's trade deficit with China. In looking at American trade with China, it is important to realize that American exports to China are growing at a faster rate than with any other country in the world, creating jobs in the process. It is also a neglected truth that trade with China allows Americans to have access to a wide array of affordable consumer goods. However, the Wall Street speculators calling for Congress to take action against China are just one voice in a chorus that wants to put protectionism and special interest before the American people's economic well-being.