Contrary to Matthew Slaughter’s assertion (“Yuan Worries,” May 22), the vast majority of economists agree that a floating currency is an important tenet of free trade. Floating currencies alleviate the destabilizing effects of large imbalances in trade.
Undervaluation of the yuan makes China’s exports to the United States cheaper and U.S. exports to China more expensive, putting American companies who play by the rules at a significant price disadvantage. As a member of the World Trade Organization, China has an obligation to its global trading partners to play by the rules, not just when they benefit China. For those of us who believe in free trade, China’s continued failure to play fairly makes it impossible to convince Americans that free trade is in our interests, and it leaves Congress no choice but to act.
Those of us moving in this direction are defending free trade; those who are blindly opposing these efforts only serve to undermine the fragile consensus for free trade. Sens. Max Baucus, Charles Grassley, Lindsey Graham and I are working on a measure within the framework of the WTO that will push the Chinese to start playing by the basic rules of free trade.
Sen. Charles E. Schumer (D., N.Y.)
Joint Economic Committee
Sen. Schumer and the colleagues he lists are no more real free-traders than the members of Milli Vanilli were real vocalists. Here’s a letter that I sent today in response to Sen. Schumer’s confusion:
To the Editor:
both the spunk and the brains of the Energizer Bunny, Sen. Charles
Schumer keeps insisting that the value of the Chinese yuan is too low
and that this (alleged) fact is a benefit to China (Letters, May 29).
can lower the value of the yuan against the dollar only by increasing
the supply of yuan relative to the dollar – a policy that causes
inflation in China. This result hardly benefits the Chinese people or
strengthens their economy. Also, by increasing nominal prices in China
relative to those in the U.S., yuan inflation ensures that Americans do
not buy Chinese goods and services at prices kept artificially low.
Donald J. Boudreaux
Update: My friend Andy Roth reveals yet more evidence that, despite Schumer’s protests to the contrary, the Senator from New York is no friend of consumers (that is, is no free trader).