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Those Harmed by an Undervalued Yuan are the Chinese, Not Americans

Here’s an essay of mine, on currency manipulation, published last month in International Banker.  A slice:

The very same good judgment that leads us to applaud advances in technology and other entrepreneurial innovations, even as such innovations destroy some existing jobs, should also lead us to applaud the rising purchasing power of the dollar: both enable American workers to consume more from a given amount of work effort.

It’s true that there are differences between increases in a currency’s value and technological improvements. Most notably, currencies today typically are issued by central banks that can, and do, monkey with the supply of currencies in order to change artificially the value of one currency against another. But this reality supplies no good reason for Americans to complain if indeed the People’s Bank of China insists on depressing the value of the yuan relative to the value of the dollar. The reason we Americans shouldn’t complain is plain: if the Chinese artificially depress the value of the yuan, they artificially increase the wealth of Americans by enabling us to buy more from China than we could buy otherwise. Those who are harmed by this policy are not Americans; rather, it’s the Chinese people.

We might rightly lament the injustice of the People’s Bank of China pursuing policies that transfer wealth from the Chinese people to the American people. But let’s be clear: the injustice does not fall on Americans; it falls on the Chinese. And any tariffs imposed by Uncle Sam in response to an allegedly undervalued yuan would make us Americans not richer but poorer.