Growing evidence suggests a stronger yuan would not help the US economy nearly as much as thought, if at all. Even increased Chinese consumption is shown not to help much. So why do these assumptions continue to underpin politicians’ rhetoric?
First, the evidence:
- Yuan revaluation could cut global growth by 1.5 per cent (April 26)
- Chinese saving less and spending more would have very little impact on US jobs (April 25)
- A 15 per cent appreciation of the RMB would reduce the American trade deficit by 5 per cent by the end of next year, but would be short-lived and would not flow through to GDP (April 16);
- “Chinese revaluation is in the interests of China, not the US” (April 16)
- “People seem to ascribe a ridiculously outsized role to China’s currency policy in producing China’s trade surplus and America’s trade deficit. The level of rhetoric is simply not consistent with the impact of the peg.” (March 15)
Even large changes in Chinese currency or consumption have little effect on the other side of the Pacific: US-China trade is simply too small to transmit much of the effect, so the arguments run.
So, second, why the continued assumption Read more