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laneroseHey y'all! So, for one of my classes this semester, I have to write an opinion - editorial piece on trade policy. In theory, the piece should make sense to people who know very little about the topic. The problem with this is, of course, that you get too close to the issue and know so much about it that it's easy to forget the minutae that need to be explained. If anyone's willing, under the cut is my op-ed about China and trade policy. I would love to know A) if it makes sense B) if it's persuasive / convincing, and C) if it leaves you feeling that you should take action. So yeah... please? ::puppy eyes::
No Such Thing As A Free Lunch?
In China, Prices Imply There Is
“Eight kuai.” The chef said, gathering our dishes as we prepared to leave his restaurant.
“Really?” A friend of mine asked, glancing at myself and the six other people with whom we’d been eating. The chef nodded, and my friend grinned. “All right guys, dinner’s on me!”
Superficially, nothing is wrong with this situation: after a meal, someone generously volunteers to pay for everyone rather than having each person pay for their own meal. The situation changes, though, when one knows the price involved. Eight kuai, the common term for the Chinese yuan, is the equivalent of slightly less than a single US dollar.
The United States currently has a deficit of more than $8.3 trillion. A primary cause of this deficit is the trade gap, which is largest in relation to China. Currently, debt to China accounts for $725.8 billion of the deficit: nearly 10% of the total. Several different factors, including overspending on the part of the US, contribute to this problem. Perhaps the most important factor is the undervaluation of the Chinese yuan.
As my trip to dinner demonstrates, the Chinese currency is seriously undervalued in relation to Western currency – a very small amount of our money can buy far more than it should be able to purchase. In spite of this, China has continually refused to let the yuan float. It seems almost illogical: China wants its money to be worth less than it should be. China’s rationale is nevertheless quite sensible, because keeping the yuan undervalued creates a continual influx of foreign currency as people seek the cheap factories and goods they find in China. Similarly, currency undervaluation keeps the number of imports low. Most workers in China simply do not make enough money to afford imports with the current exchange rate. The United States thus has a large number of imports and a low number of exports in relation to China, causing the trade gap to become increasingly wide and plunging the nation further into debt.
The US needs to take action to prevent our already enormous debt from becoming even greater, preferably by convincing China to let the yuan’s value float. The threat of tariffs last summer has resulted in the yuan’s value adjusting slightly, but the shift is slow at best. The yuan has moved from an 8.28 to 1 exchange rate with the US dollar then to an 8.03 to 1 rate now, nine months later. Pursuing the imposition of tariffs, such as those suggested by the Fair Currency Enforcement Act, may cause China to further increase the value its currency. Alternatively, the US could reinstitute higher quotas on imports from China until the Chinese improve the exchange rate sufficiently to begin bridging the trade gap.
Opponents of these courses of action claim that treating China as a scapegoat and taking protectionist measures will hurt the US economy. However, even Zhou Xiaochen, the governor of the People’s Bank of China, has said that the yuan’s value is unfairly low. Since the Chinese agree that their currency’s value is a problem, accusations of a scapegoat mentality do not hold water. While tariffs or quotas would be protectionist measures, ideally they would only be temporary measures, instituted to correct an imbalance in the market. Allowing the imbalance to persist would only cause the trade gap to grow ever wider and thereby cause further harm to the US economy. It is in the country’s best interest to close the trade gap and decrease our national debt.
Buying a meal for eight people with a single dollar is a simple thrill that any bargain hunter can appreciate. However, as is often the case, no seemingly free meal is actually free. The cost of the undervaluing of China’s currency appears every day in the United States’ steadily growing deficit. We as a nation cannot afford to let the Chinese continue to provide falsely cheap goods at the cost of our own economy. As such, the United States needs to take action to force China to increase the value of the yuan through whatever means necessary. After all, free lunch may be nice, but a stable economy is infinitely better.
In China, Prices Imply There Is
“Eight kuai.” The chef said, gathering our dishes as we prepared to leave his restaurant.
“Really?” A friend of mine asked, glancing at myself and the six other people with whom we’d been eating. The chef nodded, and my friend grinned. “All right guys, dinner’s on me!”
Superficially, nothing is wrong with this situation: after a meal, someone generously volunteers to pay for everyone rather than having each person pay for their own meal. The situation changes, though, when one knows the price involved. Eight kuai, the common term for the Chinese yuan, is the equivalent of slightly less than a single US dollar.
The United States currently has a deficit of more than $8.3 trillion. A primary cause of this deficit is the trade gap, which is largest in relation to China. Currently, debt to China accounts for $725.8 billion of the deficit: nearly 10% of the total. Several different factors, including overspending on the part of the US, contribute to this problem. Perhaps the most important factor is the undervaluation of the Chinese yuan.
As my trip to dinner demonstrates, the Chinese currency is seriously undervalued in relation to Western currency – a very small amount of our money can buy far more than it should be able to purchase. In spite of this, China has continually refused to let the yuan float. It seems almost illogical: China wants its money to be worth less than it should be. China’s rationale is nevertheless quite sensible, because keeping the yuan undervalued creates a continual influx of foreign currency as people seek the cheap factories and goods they find in China. Similarly, currency undervaluation keeps the number of imports low. Most workers in China simply do not make enough money to afford imports with the current exchange rate. The United States thus has a large number of imports and a low number of exports in relation to China, causing the trade gap to become increasingly wide and plunging the nation further into debt.
The US needs to take action to prevent our already enormous debt from becoming even greater, preferably by convincing China to let the yuan’s value float. The threat of tariffs last summer has resulted in the yuan’s value adjusting slightly, but the shift is slow at best. The yuan has moved from an 8.28 to 1 exchange rate with the US dollar then to an 8.03 to 1 rate now, nine months later. Pursuing the imposition of tariffs, such as those suggested by the Fair Currency Enforcement Act, may cause China to further increase the value its currency. Alternatively, the US could reinstitute higher quotas on imports from China until the Chinese improve the exchange rate sufficiently to begin bridging the trade gap.
Opponents of these courses of action claim that treating China as a scapegoat and taking protectionist measures will hurt the US economy. However, even Zhou Xiaochen, the governor of the People’s Bank of China, has said that the yuan’s value is unfairly low. Since the Chinese agree that their currency’s value is a problem, accusations of a scapegoat mentality do not hold water. While tariffs or quotas would be protectionist measures, ideally they would only be temporary measures, instituted to correct an imbalance in the market. Allowing the imbalance to persist would only cause the trade gap to grow ever wider and thereby cause further harm to the US economy. It is in the country’s best interest to close the trade gap and decrease our national debt.
Buying a meal for eight people with a single dollar is a simple thrill that any bargain hunter can appreciate. However, as is often the case, no seemingly free meal is actually free. The cost of the undervaluing of China’s currency appears every day in the United States’ steadily growing deficit. We as a nation cannot afford to let the Chinese continue to provide falsely cheap goods at the cost of our own economy. As such, the United States needs to take action to force China to increase the value of the yuan through whatever means necessary. After all, free lunch may be nice, but a stable economy is infinitely better.
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no subject
Date: 2006-03-30 09:44 pm (UTC)But of course, you have to remember that I'm a person that stays out of the political and economic game. 1) They're too big of a thing for me to handle at the moment and 2) they're so frustrating and I don't have the patience to deal with them at this point in my life.
So I think this piece can be presented to an audience who knows nothing about the issues with China and whatnot, but if you put it in front of an audience that knows stuff, it probably won't sail as smooth.
no subject
Date: 2006-03-30 09:57 pm (UTC)no subject
Date: 2006-03-31 09:09 am (UTC)Once I read an article that said people should count GDP with tomatoes, eg. how many tomatoes the currency can buy in it's country. Well, I bought 1 kg tomatoes with 4 yuan several days ago.
There's something interesting about the interest rate in China. In about 1992 100 yuan's interest for one year's time deposit is 10.98 yuan. Now it's about 2.25. I'm too young to remember how the economy like in 1992, but now it's something like an economic depression. Finding jobs is more difficult than before...
From a Chinese's POV, in order to join WTO, China has to overcome its numerous problems. The undervaluing of China’s currency, well, at least I think it's not urgent. Things like social security, intellectual property, re-employment, housing, traffic... they should be solved first. After all, we are living quite well, if only we don't buy things on amazon or Ebay.
BTW, love your fic!
no subject
Date: 2006-03-31 08:20 pm (UTC)and Thanks!!! ^___^ Always makes me happy to hear things like that. ^___^
no subject
Date: 2006-04-01 02:51 am (UTC)Glad that you are happy! Happy author equals happy fic. There's that one time my classmate wrote a story. I love it. But one day she failed the maths exam, and finished the story with "They all died eventually. The End." X_X