The trade deficit between the U.S. and China is growing, aided by an artificially low Chinese yuan to U.S. dollar currency rate. Washington is pressuring Beijing fix its currency peg, which would allow the yuan exchange traded fund (ETF) to appreciate more.
However, Fan Gang, an economist and former government adviser, comments that a “renminbi appreciation may not have a big impact, or an impact at all” on the American economy, reports David Leonhardt for The New York Times. The renminbi has strengthened 21% against the dollar from 2005 to 2008, but the trade deficit is still growing. [China ETFs: Plays for the No. 2 Economy.]
A stronger Chinese currency could help China’s citizens consume more, raise the country’s standard of living and help the rest of the globe produce more.
If a quick currency exchange rate fix did occur, cheap labor that used to be found in China would only move to cheaper southeast Asian countries, which wouldn’t help reduce the country’s trade deficit. [ETFs Waver on Tensions in China.]
The only credible threat Congress may offer is tariffs to force Beijing to allow its currency to appreciate. So far, the Chinese currency has strengthened 1.6% since 2008, and most of that was in the last two weeks.
For more information on the Chinese currency, visit our Chinese yuan category.
Max Chen contributed to this article.