“Obama in China: Breaking the Exchange Rate”

I have chosen my article this week from the New York Times and it is entitled “Obama in China: Breaking the Exchange Rate”. It is actually a blog, written by Simon Johnson, a former chief economist at the International Monetary Fund. Johnson talks about how President Obama is going to Asia and, most notably, China to negotiate China’s unfair exchange rate policy.

China “pegs its currency (the Renminbi, also known as the Yuan) against the American dollar, which means that it rises and — most recently — falls in tandem with the greenback”. This is a problem because China is a very large economy with a large trade surplus, most importantly with the United States. American jobs continue to move overseas to China because their exchange rate policy “gives Chinese exporters an unfair trade advantage”, one that they are all too eager to take advantage of.

The value of China’s currency is undervalued by at least 20% which allows them to amass foreign wealth. The Bush administration attempted to have the International Monetary Fund handle this issue, and China pledged as early as 2003 to do so, but has yet to make any efforts. Johnson’s solution to the problem is to give the World Trade Organization jurisdiction over exchange rates, not the IMF. He states that the IMF lacks the authority that the WTO has, and that every time the IMF tries to force China to follow any regulation, China simply refuses to do so, with no repercussions.

As an American, watching my parents and grandparents lose work because the Chinese government is practicing unfair trading tactics is infuriating. What is even more appalling is my own government’s willingness to accept this. While this is a very difficult subject, I feel that is one worth the time and effort to overcome. Of course, this sounds very typically American: whining about international business when it does not benefit the US. However, as far as I’m concerned, as long as everyone is trading fairly I have nothing to complain about.

When our money is pouring into another country because the unfair exchange rate give’s their products an unreasonable trading advantage in our own nation and abroad, I feel that there is a problem. Johnson says “The W.T.O. has much more legitimacy, primarily because smaller and poorer countries can bring and win cases against the United States and Western Europe in that forum. It also has agreed upon and proven tools for dealing with violations of acceptable trade practices; tailored trade sanctions are permitted.” In that case, it makes perfect sense to give the WTO the authority to handle such situations: they are fair, and in a perfect world, they have a blind eye for justice.

Nathen Causman

http://economix.blogs.nytimes.com/2009/11/05/obama-in-china-breaking-the-exchange-rate-deadlock/?scp=1&sq=international%20exchange%20rate&st=cse