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Originally posted by Sidd Finch
It's a definitional issue, I suppose. But, if the yuan floated, and were worth $1.50, and China imposed a 33% tariff on all US goods -- would you call that "free trade"? Would you think it was beneficial? It might get you cheaper shirts at Wal-Mart, but it doesn't help us sell American-built computers in China. Instead, we end up making them there.
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Agreed, we're having a definitional issue. I, for one, would say China does not practice free trade in your example - but I still might call the US's trade with china "free," depending on what its policy was, just because I don't think discussing "free trade" only as a bilateral (or multilateral) concept is adequate or accurate. Whether one calls it "free trade" or not is irrelevant for purposes of discussing whether our (or china's) policies are a good idea.
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And there is plenty of dispute to the theory that there's a net benefit to the one party who is opening its markets. If your idea were true -- the party with liberal trade policies benefits, the one without them does not -- then we would never pressure other countries to open their markets.
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If I thought macro economic actors were consistently rational any more than micro economic actors, I'd say that was a good argument.
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Wow. That IS silly. I mean, suggesting that the value of the yuan is articifically suppressed, just because it is undervalued as a result of a government policy that pegs the currency to the dollar rather than letting it float? I don't know what came over me.
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Well, you implied the Chinese G was somehow doing something to suppress it, when it is in fact the US G's fiscal policy that is having a secondary effect of suppressing it, given the existence of the peg. (If you didn't imply it, media coverage certainly has. The "common wisdom" of the thing is really what I was noting was silly.) The yuan is, of course, valued lower than it was when the dollar was strong (though it is not necessarily clear whether, or how much, it is currently undervalued vs. the $). Obviously, chinese policy has the effect of maintaining that lower value. That's different than saying the Chinese have a policy of undervaluing the currency, or are doing things (or not doing things) because they are trying to achieve or maintain that value.
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Again, I can't imagine what came over me, thinking that the Chinese government might have something to do with the policy of keeping the yuan pegged to the dollar. Or that it might not be an accident that they did so. Or that it might be related to keeping export prices low so as to provide more manufacturing jobs.
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Pegging, unpegging, floating, indexing, or otherwise fundamentally restructuring the valuation of a national currency isn't a simple matter of changing your mind based on the immediate market situation, however. Regardless of whether the yuan is now undervalued vis a vis the dollar or anything else, changing currency policy has serious reprecussions beyond the effects of revaluing the currency. "Keeping the yuan pegged to the dollar" can't properly be considered just a decision to undervalue the yuan.
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Again, lots of disagreement on that. From Beijing, among other places.
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Well, I think they're wrong. I'm not quick to trust the thinking of a centralized communist state on market issues.
