MEDIA INQUIRIES: Lloyd Wood, 202.452.0866,
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OTHER INQUIRIES: Charles Blum, 202.904.2475,
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UNITED STATES HAS LEVERAGE TO END CHINA CURRENCY PROBLEM
In any negotiation, leverage is a measure of which side, at any given moment, has a greater ability to influence the other side. Even in the face of the loss of 5.6 million manufacturing jobs in the last decade, the United States has been a “paper tiger” in negotiating with mercantilist Asian export tigers like China. With rare exceptions, America has been unwilling to use its leverage of limiting access to the U.S. market under international trade rules and has not been able otherwise to persuade countries like China to desist from currency manipulation and other illegal trade practices that destroy U.S. jobs.
MEDIA INQUIRIES: Lloyd Wood, 202.452.0866,
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OTHER INQUIRIES: Charles Blum, 202.904.2475,
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How a persistently undervalued currency distorts investment flows and sends U.S. jobs offshore
A persistently undervalued currency affects investment as much as it does trade. For example, China’s persistently undervalued currency encourages investment in China at the expense of investment in the United States. This has the direct result of sending American jobs offshore.
When a currency is undervalued, investors with dollars, euros, or other currencies, rent land and purchase equipment for less in that country than the same activities would cost in other countries that do not undervalue their currencies. As a hypothetical, let’s say it would cost 4 billion RMB to build a steel mill in China. At current exchange rates, this mill would cost an investor around $586 million dollars. If the RMB were allowed to rise to its fair value on the open market, however, that same mill would cost approximately $900 million, an increase of more than $300 million. This savings is purely the result of the Chinese government maintaining the misalignment of currency.
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How China’s currency defies the laws of monetary physics
One immutable law of “monetary physics” is that when a country runs current account surpluses, the value of its currency must appreciate. Current account surpluses accumulate as foreign exchange reserves, and only a currency correction can prevent destabilizing imbalances in the monetary system. Thus, the only plausible explanation of the failure of China’s RMB to obey this law is that the Chinese government has been massively intervening in a sustained manner to prevent the RMB’s increase in value relative to other currencies.
Act Now: Legislators Should Co-Sponsor Currency Reform Bill
We are collecting petition signatures from as many states as possible to deliver to each state's legislative delegation. Your name will be on the petition for your state, going to all your Representatives and Senators. Click here to sign the petition. Click here to learn more about currency misalignment and how it is worsening the trade deficit and harming our economy.
