China today allowed the RMB to depreciate by 2% against the dollar, after five years of RMB appreciation against the dollar.
And here was Donald Trump on CNBC on Tuesday:
Republican presidential candidate Donald Trump on Tuesday said China’s devaluation of the yuan would be “devastating” for the United States.
“They’re just destroying us,” the billionaire businessman, a long-time critic of China’s currency policy, said in a CNN interview.
“They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”
That is demagogic baloney, pure and simple.
The US dollar has appreciated by nearly 25% over the past year on a trade-weighted basis. By pegging the RMB to the dollar, China has allowed its own real effective exchange rate to appreciate against all its trading partners other than the United States.
That has priced a considerable portion of Chinese exports out of the market.
Dr. Guonan Ma, until recently the chief China economist at the Bank for International Settlements, has been urging the People’s Bank of China to abandon the dollar peg for more than a year. He wrote in the Financial Times last February:
This 20-year old dollar peg has served the Chinese economy well, but its time is up. First, as the biggest trading nation and second largest economy, China is too big to be anchored to any single currency, even in a loose fashion. Second, a dollar peg has often amplified external shocks to the Chinese economy, because of the dollar’s safe haven role. Finally, the US no longer welcomes a renewed Chinese peg to its currency and yet demands nothing but ‘one-direction flexibility’.
It’s high time that the PBoC lets the dollar peg go.
China needs to let the RMB depreciate by about 7%, according to Reorient Group chief China economist Steve Wang. The notion that the Chinese are devlauating their currency to flood America with imports is factually wrong. After a decade of double-digit growth, American imports from China have been flat for the past five years.
The facts do not appear to worry Mr. Trump, neither in the case of China’s currency or in the case of Latin American immigration. In fact, more Mexicans have left the United States than come to the United States since 2008, according to the highly-respected Pew Institute, for the simple reasons that jobs have not been available.
Americans are hurting, and people who hurt tend to look for someone to blame: Mexican illegals or Chinese exporters. The facts tell us that neither has contributed to America’s economic misery over the past five years. Trump is playing the most dangerous sort of political game, stirring up rancor against targets of opportunity abroad. If that is the best America’s Republican frontunner can do, the country is in deep trouble.
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