What Is Seen and What Is Not Seen

by Don Boudreaux on January 16, 2007

in Trade

Here’s a letter that I sent today to the New York Post:

The Editor, New York Post

Dear Editor:

As
you report, Uncle Sam "blames Beijing’s currency practices for
contributing to the United States’ bloated trade deficit with China"
("IMF Chief: Global Economy Threats Easing," Jan. 16).  But as my
colleague Tyler Cowen explained
in his New York Times column, a higher
valued Chinese yuan would have little, if any, effect on the size of
this trade deficit.

The reason is that Chinese manufacturers
specialize in assembly: they buy component parts from other Asian
countries and then assemble these parts into finished products for
export.

By lowering Chinese producers’ costs of acquiring key
inputs, a higher-valued yuan would reduce their costs of production –
and thus do little to raise the prices that American consumers pay for
goods made in China.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

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