Are Americans Harmed by a Low-Priced Renminbi?

by Don Boudreaux on May 3, 2010

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Washington Post:

Suppose that Robert Samuelson is correct that the Chinese renminbi is undervalued by 40 percent (“A new economic world order?” May 3).  His conclusion that the resulting low prices of Chinese exports pose a threat to America’s economy doesn’t follow.

To see why, ask what would happen if the prices of Chinese exports fell by 40 percent as a result, not of currency manipulation, but of a discovery by Chinese shippers of a proprietary new source of fuel for their warehouses and cargo ships – a highly efficient fuel that cuts energy costs so much that the prices of Chinese exports fall by 40 percent.

Would Mr. Samuelson complain?  No less (and no more) than the allegedly undervalued renminbi, this technological advance would increase American imports and intensify competitive pressures on many American exporters.  But unless Mr. Samuelson has become a naïve protectionist (which is unlikely), he wouldn’t worry about the effects of this technological advance on America’s economy.  So why does he worry about the nearly identical effects of an undervalued renminbi?

Sincerely,
Donald J. Boudreaux

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