Currency Manipulation (Essay Sample)

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Currency Manipulation
The U.S and China have enjoyed long economic relations that have expanded for over three decades today. The last twenty years have witnessed an exceptional growth in trade between these nations. As a result, the amount of U.S-China trade rose from $5 billion in 1981 to about $503 billion in the year 2011. Today, China is recognized as the second-largest trading partner to the U.S. in this context, it provides the third-largest export market and the prime source of imports. According to the government records, the U.S imports from China have exceeded the U.S exports to China. Consequently, the merchandise trade deficit has grown from $10 billion in 1990 to $296 billion in 2011. These statistics indicate the fast pace of economic integration between these nations over the years thus making it more complex. The trade relations are generally beneficial to both countries. China has a large population that provides a large market for U.S export products. Moreover, the market is growing and the economy booming thus providing better investment opportunities for numerous U.S firms. On the other hand, the China imports to the U.S are low in cost. Therefore, the U.S consumers enjoy the quality low-priced products. In addition, China is involved in the securities business with the U.S. This is where the country purchases the U.S Treasury Securities thus maintaining low levers of U.S interest rates. Some economists argue that the close trade relations with China have jeopardized the development of the U.S firms due to competition from China. This is because the Chinese markets offer low-cost operations.
The above descriptions show the close trade relations between two largest economies in the world. However, several economic issues affect the bilateral trade. According to U.S analysts, China is suspected to be manipulating their domestic currency in order to gain an economic advantage over the U.S. Several articles in The Wall Street Journal indicate the issue as a matter of concern for the economic experts in the U.S. In 25 February 2010, a U.S senator proposed an action against the Chinese over allegations of the currency manipulation. A year later, the U.S declined to declare China as a currency manipulator. However, there were strong indications that the U.S government considered China as currency manipulators (Chin). In addition, some economists provided evidence to prove this claims. However, the China government dismissed the allegations and maintained that they are not involved in manipulating their currency in any way. The most recent discussion of the currency manipulation and China rose during the infamous U.S presidential debates. The debate involved the sitting president Obama and his contestant Romney. Romney criticized China for currency manipulation and sought to make the allegations official. The potential presidents suggested that they would take various actions against China with regard to the claims. According to Romney, China was a currency manipulator. He claimed that Beijing maintains its currency untruly low in order to take advantage of the export sector (Chin).
In the year 2012, government analysts claimed that the U.S-China relations were strained since the currency manipulation enabled China to keep its currency artificially low. As a result, there were adverse effects on U.S manufacturers. In addition, the Obama administration insisted that China’s currency remained significantly undervalued. However, the current president did not mention the currency manipulation issue. At some point, the U.S treasury came into China’s support on their semi-annual report. This is where the Treasury asserted that china did not meet all the legal requirements to be branded a currency manipulator. Beijing controls the movements made by the Yuan in all aspects of trade. The analysts further indicated the administration’s aim to maintain the excellent trade relations between U.S and China and sustain the pressure on China regarding the low-priced currency (Crittenden).
The economists’ analyses explain the concept of currency manipulation in relation to the Yuan and the U.S dollar. Analysts explain that the dollar stays flat against the Chinese Yuan even with the depreciation of other world currencies. However, the Yuan looses value with respect to other major currencies (Boles). According to the treasury, the dollar/Yuan exchange defies the laws of monetary movements. Therefore, the U.S products are relatively low-priced for others to buy, whereas foreign products become more expensive for the U.S citizens to buy. Such a situation results to a balance into the two countries accounts. However, China implements a policy that deliberately allows the pegging of the Yuan to the dollar. Consequently, the American Imports of products from China are artificially cheap and gives America’s firms opening factories in China an artificial subsidy. This results to an increase in the trade imbalance between China and the U.S. in addition, the America’s trade deficit with other countries portrayed a decreasing position but not with China.
There are numerous protest letters sent by several U.S senators protesting on the issue of China’s currency manipulation allegations. The U.S manufactures have also sent various letters to the U.S treasury complaining of the same suspicions. However, the non-verbal reactions from the treasury led to the manufacturers’ accusations that the treasury is not taking the matter seriously. An article dated 25 February 2010 entitled Senators Urge U.S Action on Chinese Currency Manipulation quoted the manufactures filing specific evidences on the allegations against China (Boles). They claimed that the China government kept its currency at low levels thus harming the U.S industry. The senators involved in the issue claimed that it was difficult to investigate the issue because of the misinterpretations in the legal standards of a subsidy. The manufacturers’ evidence included the massive growth of the paper and paperboard exports to the U.S that grew by 21% between 2006 and 2008. Consequently, the concerned parties stated that it was clear the China’s policy of the large-scale intervention in the exchange markets and the momentous undervaluation of Yuan were considered a subsidy to Chinese exports to the U.S (Morrison).
The complexity of the trade relations between China and the U.S has rendered the Obama’s administration powerless to further their allegations and brand China a currency manipulator. This is because China is the second-largest foreign owner of U.S debt with $775 billion in U.S treasury (Chin). In addition, the bilateral trade between these nations can be adversely affected by such official claims of currency manipulation. The largest part of the U.S presidential debate entailed the attack on China’s trade policies and currency value. This called for the Chinese Foreign Ministry’s reaction through the representative who retaliated that the U.S-China relations are important to both nations. He stated that the trade relations should be maintained since it was beneficial to the peace, stability, and prosperity of the region and the whole world. The representative further stated that the trade relations should be viewed as development-oriented. Furthermore, he called for cooperation and mutual trust in order to maintain the cordial trade relations with the U.S.
According to America’s economists, China’s incomplete transition to a free market economy and its use of distorted economic policies have strained the trade and commercial relations with the U.S. There are numerous current impacts on the U.S economy that extends to the global markets. Various U.S policy makers have raised concerns on China’s efforts to sustain their undervalued currency and its inconsistent record on the implementation of the World Trade Organization (WTO) obligations (Crittenden). This also includes complains towards China’s extensive use of industrial policies such as financial support of state-owned firms and export restrictions on raw materials and so on. Experts assert that the U.S economy has been on the negative side of the trade relations with China. The Chinese government’s trade policies are considered harmful to the U.S economic interests. According to analysts, they have contributed to the loss of Jobs in the country.
The claims of currency manipulation as an economic issue in the U.S have led to various reactions from some member of congress. The members have resulted to aggressively advocating for strict U.S trade policy towards China. For example, they are pushing for increased number of dispute settlement cases against China forwarded to WTO. Moreover, the current president of the U.S, Obama announced earlier in the year 2012 that they anticipated the creation of a Trade Enforcement Unit whose responsibility entail investigating suspected unfair trade practices in countries like China. However, some members are reluctant towards trade aggressiveness against China. This is because of the deeply rooted trade relations that may force China to retaliate against the U.S. This would lead to economic issues on U.S exports to, and investments, in China. The creation of strained trade dealings between U.S and China would be detrimental to both Nations (Morrison).
According to the recent U.S treasury reports, the U.S government exhibits the desire to maintain the excellent trade associations with its high-level creditor and an effort to continue keeping the pressure for changes in China. This would work to the advantage of America’s economy and appease the current domestic critics. In th...