The U.S. Senate recently passed a bill to put a high tariff on Chinese imports until the Chinese government allows its currency to be market determined. China has been manipulating the exchange rate to keep the yuan undervalued, and thus has an unfair advantage in the world trade market. This advantage occurs because the undervalued yuan makes Chinese goods cheaper for foreigners and thus increases the amount that China exports. This has cost the United States billions of dollars in lost exports over the years. The idea of the tariff is to even out the playing field, giving a boost to American businesses and decreasing domestic unemployment. According to Ben Bernanke, the value of the yuan is slowing economic recovery worldwide. [1] This is because China is unfairly luring trade away from countries with fair, market-determined exchange rates.
Although the undervalued yuan is detrimental to the U.S. economy, many people are skeptical that a tariff will fix the situation. China spends $1 to $2 billion a day to keep its currency undervalued between twenty and thirty percent.[2] A tariff of 27.5% on Chinese imports sounds promising, but it is unlikely that the House will pass the bill. The U.S. government is afraid of starting a trade war with China that will ultimately be more detrimental to American trade than the undervalued currency; U.S. manufacturers who operate in China are skeptical. Senator Schumer argues that China depends on the U.S. to import its goods more than the U.S. depends on China, and therefore the benefits of the tariff outweigh the costs.
The undervalued yuan is detrimental to the US economy and to worldwide recovery. Therefore, China should be punished for manipulating the exchange rate, and this action will encourage the Chinese government to let it become market determined. However, a tariff of 27.5% may be too harsh and cause a trade war between the US and China—which would only further worsen economic conditions. With this being said, a lower tariff rate may be more acceptable. If the U.S. taxed Chinese imports at a lower rate, such as 15%, it would encourage the Chinese government to let the yuan float without inciting the Chinese to retaliate in a trade war.
Sources
“Bipartisan Support For China Tariffs Ahead Of Vote : NPR”, n.d., http://www.npr.org/2011/10/06/141097564/bipartisan-support-for-china-tariffs-ahead-of-vote.
“Schumer to revive China tariff legislation - MarketWatch”, n.d., http://www.marketwatch.com/story/schumer-to-revive-china-tariff-legislation-2011-01-16.
“Senate Nears Approval of Measure to Punish China Over Currency Manipulation - NYTimes.com”, n.d., http://www.nytimes.com/2011/10/07/business/senate-nears-approval-of-measure-to-punish-china-over-currency-manipulation.html?_r=2&pagewanted=all.
No comments:
Post a Comment