Center for American Progress

Tackling China’s Exchange Rate Issue Isn’t Enough
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Tackling China’s Exchange Rate Issue Isn’t Enough

Policymakers should not pretend that tackling the exchange rate issue will be a panacea for our economic growth, jobs, and competitiveness challenges.

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Legislation to pressure China on its undervalued exchange rate is wending its way through the Senate this week. Addressing China’s undervalued currency would be a good thing: China’s exchange rate policies are partially to blame for the United States’ growing trade deficit, erosion of jobs providing middle-class livelihoods, and international financial imbalances that threaten to destabilize the world economy—and China’s economy, too. Policymakers should not pretend, however, that tackling the exchange rate issue will be a panacea for our economic growth, jobs, and competitiveness challenges.

China’s undervalued exchange rate policy in effect subsidizes its exports, while at the same time making exports from the United States that much more expensive in terms of China’s money, the renminbi (sometimes referred to as yuan). But China’s economic modernization and transformation from an inefficient agricultural producer to a nimble, technologically advancing, and globally competitive manufacturing economy rests on a much broader foundation of national economic strategy than just its exchange rate management.

China is making massive public investments in modern infrastructure and renewable energy systems, science and technology, education, and (more recently) social protection. The United States used to know such public policies are critical in providing a foundation for robust private-sector economic growth, and could do these things again today irrespective of China’s exchange rate—were it not for obstructionist politics in Congress.

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