...Manipulation Affects US Economy Howe School of Technology Management Principles of Economics How China’s Currency Manipulation Affects US Economy Currency intervention is the action of one or more governments, central banks, or speculators that increases or reduces the value of a particular currency against another currency – this is according to Wikipedia. From January until October in 2010 imports from China to the United States this year were $299,026.0 million and only $72,276.2 million in exports to China, leaving a U.S. trade deficit of -226,749.8 million - this is according to the U.S Census Bureau U.S Foreign Trade Statistics. Here we can examine that Chinese imports to the United States were too high which makes U.S. Gross Domestic Profit (GDP) shrink because imports are subtracted to the Gross Domestic Profit. This trade deficit causes damage to the United States manufacturers and destroys jobs. Chinese products are very attractive because their low labor cost. When U.S. people purchase Chinese manufacturing goods, their manufactures are compensated in dollars which are placed in a United States bank account. Then, the Chinese need to exchange the dollars to Yuan and as a result via their banks they sell the dollars to the Chinese Central Bank which is known as the People’s Bank of China. Given that the U.S trade with China does not balance, the result will be a shortage of the Yuan and a surplus of the U.S dollar in the...
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...China and the Yuan-Dollar Exchange Rate Q1) How credible was China’s announcement to let the yuan float? Chinese Yuan/US Dollar Exchange Rate Index, July 2005-Nov 2011 Chinese government has declared its intention to let the yuan float on 19th June of 2010, and this will most likely result in the Yuan to appreciate as the Yuan is under-valued. This reform was of the Renminbi (RMB) exchange rate regime was to enhance its exchange rate flexibility. This announcement may seems dubious because China has long adopted a fixed exchange rate regime since 1994 in which the Chinese government has maintained a policy of intervening in currency markets to limit or halt the appreciation of its currency, the RMB, against the U.S. dollar and other currencies. Known as the world’s manufacturing factory, keeping such a policy will definitely make its exports relatively and comparably cheaper to other countries, especially United States. Similarly, this will also make U.S. exports to China much more expensive, than would occur under free market conditions. As such, if China allows its yuan to float and appreciate, it may lose its competitive position as it may suffer a loss in sales of its exports due to its goods being relatively more expensive to foreign buyers. China’s announcement to let its yuan appreciate was credible because earlier on, the yuan actually appreciated 17.5 percent the U.S. dollar between July 21 2005 to July 21, 2008. In July 21, 2008 China has stopped its Yuan appreciation...
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... Problem Statement In 2006, China has undergone pressure by many countries including the United States. The U.S. believed that the renminbi (RMB), failed to appreciate eliminating job opportunities for other countries. However, China’s officials reacted by implying that China was a sovereign country with the right to choose its exchange rate policy. Pertinent Facts The exchange rate is one of the key factors that could possibly affect foreign profitability. In the case, Fung and Wong indicated in 2006, that China had become the world’s third-largest exporter with an estimated $970 billion and earning $1.2 trillion in foreign currency reserves (Fung). The U.S. and other countries are concerned that the Yuan was undervalued which will ultimately raise the demand for Chinese exports and decrease China's demand for imports from other countries. Becker states that if China keeps the dollar and the currencies of other countries artificially expensive compared to its currency it will create a problem towards other economies (Becker). The U.S. believes that China is manipulating the exchange rate to increase trade and dollar assets. The United States have also expressed extreme concern with China’s way of trade. For example, the U.S. questioned the fact that the renminbi is being a peg against the dollar. This case analysis will subsequently identify the following answers to the questions: * Should China allow the Yuan to appreciate? * Will a stronger...
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...ago, China was said to be the most advanced nation in the world. Today, they are still much more advance than most of the countries. China was named by Europeans after the ancient Ch’in Dynasty of the third Century B.C. China continues to be the oldest civilization in the world today. China was the only from the world’s great civilizations to evolve from nearly total isolation from the rest of the world. The primarily result of this was geography: the sea to the east, the Himalayas to the south, the Gobi desert to the north and inhospitable deserts and high plateaus to the west. The Yellow river in China is said to be the source of the first Chinese culture and civilization. There are many different cultures located in China such as the Yangshao culture, Hongshan culture, and Yunnan culture. Ancient Chinese agrarian religion revolved around the worship of natural forces and spirits who controlled the elements and presided over rivers, fields and mountains. Shaman known as wu acted as intermediaries between the human and spiritual worlds and performed rites to insure good weather and harvests and keep evil spirits at bay. Even though China is regarded officially as an atheist state today, it has had an officially recognized religion since 2356 B.C., when science, religion, mythology and government were all linked together. Taoism and Confucianism began to take shape around the 5th and 6th centuries B.C. but evolved from religions that had been around in China for...
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...the prospects for U.S-China trade With the significant development of economy, China has already exceeded Japan, becoming the second largest economic entity in the world. From 1949 to the present, China's economy grew annually from 4 to 10 percent. There is no doubt that the export contributes a lot to China’s GDP; meanwhile, United States just replaced the European Union, turning into China’s largest trade partner last year. It is obvious that China and U.S. are closely connected in the modern economy. Since U.S. and China are inextricably linked, I would like to analyze the trade between U.S. and China in this paper, and find out what are influencing the value of trade between the two countries. First of all, there are some economic concepts that need to be explained. China has a favourable balance of trade, which means nowadays China exports more than imports; however, U.S. has run a trade deficit every year for more than thirty years, which means U.S. imports more. The import and export are always connected with the exchange rate. For instance, if you are exporting and your local currency becomes strong then your products become more expensive for your buyers. If you are importing and your local currency becomes weak then the products you are importing become more expensive. As we can see, China is exporting more to the U.S., so I would assume that one of the reason why U.S. would import more from China may be the exchange rate of China’s currency Yuan is slumping; in the...
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...the countries in the world. Some countries being criticized for its policies to keep their currencies remain weak. Japan, for example, they intervene for the first time since 2004, to sell 2.12 trillion yen on September 15. This is to protect the increase in the yen exchange rate that has reached its highest level in 15 years. The debate actually starts from the currency war between China and the United States. US have been protesting China over the years. US judge China to hold its currency not to strengthen to protect its exports. US even plans to establish sanctions against China for not allowing its currency to strengthen against the U.S. dollar as it should. China's rapid economic growth has caused China's trade surplus against its trading partner countries to increase. In the second quarter of 2010, China's economy grew 10.3 percent, from 11.9 percent growth in the previous quarter. However, on the contrary, many Chinese trading partners are experiencing widening trade deficit, including the U.S. In 2009, the U.S. trade balance deficit with China has more than 220 billion U.S. dollars. This figure rose sharply from a deficit balance of trade a decade earlier, which only reached 69 billion...
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... Course: ECN 450 Date: 28/03/2011 China has a high level of policy intervention in the depreciation of the Renminbi (RMB) or (CNY). The depreciation of the RMB against the United States of America’s Dollar (USD) puts the USA’s firms and factories at a massive competitive disadvantage (China Currency Overview, 2010). There are two economists’ viewpoints when it comes to the undervaluation or overvaluation of the RMB against the USD and against other world currencies. There are economists that argue that the RMB is overvalued against some world currencies beside the Euro and the USD (Yuan is Overvalued, not Undervalued: report, 2010). Other economists argue that the RMB is undervalued against the USD, and this would be the major focus of this research paper. The RMB’s depreciation allows China to unfairly gain trade advantages over other trading nations. Economists views varies on the level at which the RMB’s undervaluation affect other Chinese trading partners. But most economists agree that currency flexibility would be of great help to decrease global imbalances (China Currency Overview, 2010). This research paper will discuss the different component of the Chinese protectionism policy for its exchange rate, and its effects on other nations such as the USA. The focus will be in showing the advantages and disadvantage for the USA and China in the trading balance. Historical background of the RMB: Preceding year 1994, China had a dual exchange rate system. The dual...
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...1.0 Summary of the article It is not surprise to everyone that China has a major role in the global economy since its economic growth has moves the country into the ranks of middle income countries. Unfortunately, issues that China faced in most recently are whether it can contribute to the vigour of the worldwide economy and manage its internal stability. China's economy is now weakening and its GDP is perhaps below the government target of 7%. Investment sentiment is the weakest indicator, while the production level in China's industries has dropped which left surplus production capacity in the industries. Although China growth is slowing down, the probability that it will collapse suddenly is small. 2.0 Discussion The biggest problem in China is that the massive debt explosion is now threatening its entire economy, leading to a reduction in capital investment. There has been a boom in the Chinese stock market, yet buying share with borrowed money had magnified the fall when companies with huge debt begin to sell their investments to pay debts (Walker, 2015). Shanghai Composite Index decreased about 8.5% in August followed by China economy downturn which perhaps was the biggest decrease since 2007 (McHugh, 2015). Overreaction in Chinese market then affect the world such as Japan's Nikkei index had slipped by 4.6%, while the Eurofirst 300 index has had its worst day since 2009 (Matthews, 2015). However, falling of stock markets in itself will not cumber the global economy...
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...Answers to eThemes of the Times for Krugman/Obstfeld International Economics: Theory and Policy, 7e Chapter 1: Introduction "U.S. and Trade Partners Maintain Unhealthy Long-Term Relationship" By Louis Uchitelle, New York Times, Saturday, September 18, 2004 1. The subject of this article centers on the current account balance. Does this seem like an "international trade" or an "international money" issue? Answer: Aspects of the issue seem to overlap with both areas of international economics. The article discusses goods and services transactions [trade], as well as international borrowing and exchange rates [money]. 2. Many economists seem to be giving the issue of the current account a lot of thought. Does there seem to be a consensus in the article? Does your answer surprise you? Answers will vary. If anything, the consensus is confusion—confusion at how the deficit has persisted for so long with no severe consequences. Bergsten stands out as the most alarmed, though almost every economist seems a bit concerned about the trade deficit. This economist, on the contrary, is not concerned at all about the current account deficit, and you may come to your own conclusion upon reading further chapters. In general economists tend to agree about many big-picture issues, but may disagree occasionally where the data is open to interpretation or when more ideological considerations come into play. 3. Near the end of the article there is a logical fallacy...
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...of the Problem China had to decide whether to have a free floating exchange rate or keeping their new managed floating exchange rate. Over the years the Yuan still moved in a fixed exchange rate in relation to the dollar. This undervalued the Yuan increasing the amount of exports from China and the trade deficit of the United States. They moved to a managed floating exchange rate where the government or Central Bank controls the exchange rate. Free floating depends on the market conditions and equilibrium level. (Hill, 2009) China’s export volume is the driver of their economy growth. Due to the depreciation of the U.S. Dollar, China has been effected by decreased exports and a slower growth rate. They are being pressured to have a more appreciated exchange rate in order to react to these economic events. China can appreciate the Yuan as long as they phase it in according to needs, such as to increase exports of more knowledge-based products to other countries or improving the imbalance of trade to the U.S. (Ding, 2007) Possible Solutions China could have more flexibility in their exchange rate so that the currency can react to domestic inflation of the economic and political events that may directly or indirectly affect China. This would appreciate the exchange rate and create problems for China’s domestic financial markets by decreasing the ability to compete by prices in the international markets. (Chien-Chung, 2010) China could also stay with their...
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...Constitutional SystemChina or People¶s Republic of China adopts socialist system or communism in their political system in their decision-making processes in governing the country.The country¶s sole political party in power is known as the Communist Party of China.The government have the sole power to control all activities done by their citizen as whathave been describe in how communism system worked in governing a country. Inother words, the purposes of working in China are to contribute to the nation and alsoto the government as the government control on all activities in the country.ii.Stability of Government. The stability of the China government is quite moderate and stable because theadministration of the government are not publicize to the public either through thepress or on the internet. So, the degree of the citizen involvement in the politics is lowbecause of the heavy restrictions impose by the government. However, the policiesimpose and the law regulations are quite effective in terms of economy where China isone of the leading countries in the world. In the recent years (2001), China has joinedthe World Trade Organization and results rapid growth in industrial and manufacturingsectors because of the cheap labor in China. But still problems such as managingenvironmental degradation, demographic pressure and the extreme immigration fromrural to urban area must be faced by the government.iii.Business FreedomThe business freedom in China is quite tight because of the regulation...
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...Financial Markets & Institutions Group Assignment Yuan Devaluation Group 2 Group Members Kouadio Dieudonne XPGDM-18 Rohit Khandelwal XPGDM-28 Shruti Tibrewal XPGDM-32 COUNTRY AT A GLANCE Population | 1.364 billion | 2014 | GDP | $10.35 trillion | 2014 | GDP growth | 7.3% | 2014 | Inflation | 2.0% | 2014 | CHINA Economic Overview The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it jumped up to second place with a nominal GDP of USD 9.2 trillion. Since the introduction of the economic reforms in 1978, China has become the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented the largest share of GDP. However, in recent years, China’s modernization propelled the tertiary sector and, in 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the primary sector’s weight in GDP has shrunk dramatically since the country opened to the world. China weathered the global economic crisis better than most other countries. In November 2008, the State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an...
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...Answers to eThemes of the Times for Krugman/Obstfeld International Economics: Theory and Policy, 7e 2 Krugman/Obstfeld, International Economics 7e Chapter 1: Introduction "U.S. and Trade Partners Maintain Unhealthy Long-Term Relationship " By Louis Uchitelle, New York Times, Saturday, September 18, 2004 1. The subject of this article centers on the current account balance. Does this seem like an "international trade" or an "international money" issue? Answer: Aspects of the issue seem to overlap with both areas of international economics. The article discusses goods and services transactions [trade], as well as international borrowing and exchange rates [money]. 2. Many economists seem to be giving the issue of the current account a lot of thought. Does there seem to be a consensus in the article? Does your answer surprise you? Answers will vary. If anything, the consensus is confusion—confusion at how the deficit has persisted for so long with no severe consequences. Bergsten stands out as the most alarmed, though almost every economist seems a bit concerned about the trade deficit. This economist, on the contrary, is not concerned at all about the current account deficit, and you may come to your own conclusion upon reading further chapters. In general economists tend to agree about many big-picture issues, but may disagree occasionally where the data is open to interpretation or when more ideological considerations come into play. 3. Near the end of the article...
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...of the globe. It mirrors the problems of growth, business cycles, unemployment, and inflation (Colander, 2010). The purpose of this assignment is to define the outcomes if imports’ surplus is brought into the United States. This paper will discuss the impacts of global trade to university students, domestic markets and Gross Domestic Product. Furthermore, the paper will discuss the way the decisions of government impact international trade and relations associated with quotas and tariffs. The paper will also define the foreign exchange rate and the way they area determined. The reason that U.S. simply does not restrict all imports from China will also be discussed in the paper. What happens where there is a surplus of imports brought into the U.S.? The consumers and businesses will be affected if imports’ surplus is brought into U.S. There will be a drop in the cost of the goods when importations are brought in are composed of services and goods, and eventually balance of trade deficit will be created by it. There will be a drop in the services and goods of United States if importations are brought into the U.S. With an import excess, a precise instance of a product is purchasing a home and attempting for getting the broker to cut the charge by ten thousand dollars. As the existing purchaser isn’t ready to pay full price, it would be simpler if the house is sold by the broker at their asking price. What are the effects of international trade to GDP, domestic markets and...
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... The table below represent U.S. trade balance with China over years (2007-2011): Years: 2007 2008 2009 2010 2011 Export: 62,936,891,576 69,732,837,543 69,496,678,611 91,880,613,079 103,939,433,941 Years: 2007 2008 2009 2010 2011 Import: 321,442,866,934 337,772,627,823 296,373,883,488 364,943,854,151 399,361,922,088 Trade balance with China Years: 2007 2008 2009 2010 2011 (millions of dollars) -258,505,975,358 -268,039,790,280 -226,877,204,877 -273,063,241,072 -295,422,488,147 China (in the terms of trade volume) is the second largest trade partner of the United States. Looking at the data, it can be noted that over the last five years, United States has continuously been in trade deficit with China i.e. Chinese exports to United States exceeds its imports from United States. Product wise, except for some primary sector products...
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