Time Magazine - Currency Conflict article
Economist - USA worrying about China
Economist - Valuation Of Currencies
China Report - https://www.phn.com/Portals/0/PDFs/ArticlesandAdvice/Publications/china_a_sleeping_giant_no_more.pdf
Personal Interview - Gilles Couturier
Wednesday, August 15, 2007
Monday, June 18, 2007
The Currency War
Traditionally, the Chinese Yuan was pegged very closely to the US Dollar. This means that the governments made the necessary economic changes to maintain the same exchange rate. Eventually, in July 2005, the peg to the Dollar was removed, and a floating exchanging rate emerged. This means that the macro-economic policy was no longer directed at maintaining the same exchange rate, but rather the exchange rate can change. Thus it floats. The Yuan was undervalued towards the Dollar, a situation that precipitated the change to a floating exchange rate. However, the United States is now claiming that the Yuan has not appreciated enough (8% since the change), and that the Chinese government is still keeping the Yuan grossly undervalued (40%). This is to the point where Congress has asked the US Treasury to label China a currency manipulator.
What US Congress wants the Chinese to do is revalue their currency. The US claims the exchange rate is hurting their foreign debt by inflating it. The fruitless efforts of the US Treasury Secretary has led Congress to pass a bill calling for the revaluation of the Yuan or subsequent trade tariffs of 20%.
This is quite obviously a form of protectionism, where the US is using trade tariffs as the method. The apparent motives for this is to stabilize the balance of payments and to protect employment. China currently holds US$232.5 in debt, and the US hopes that by imposing the trade tariffs, their trade deficit will decrease, and they will be able to regain control of their foreign debt. Also, the politicians want to stop all of the factory jobs flushing to China. By imposing trade tariffs, the Chinese goods become more expensive, so the consumers will buy more American-made goods.
However, these tariffs carry with them great risks. These are risks that will ultimately hurt the US. Firstly, it is worth mentioning that the United States of America is rather dependant on China, trade-wise. Since the US is one of China's biggest customers, the tariffs will firstly hit American consumers. The price level will rise because of this international tax, and the American firms will become less competitive. Also, there is the potential threat of retaliation from China, which may result in a trade war. This will hurt both the United States and China.
These tariffs would thus hurt the US, and create more foreign debt, higher inflation and less competitive American firms. This is exactly what the US wanted to avoid by imposing these tariffs. The opportunity cost of imposing the tariffs and the resulting carnage aftermath is greater than the status quo. It is quite obvious here that the US is trying to maintain a market share in manufacturing. However, it is also quite obvious that China has a comparative advantage in this industry. Thus, instead of adopting protectionism, which only delays and magnifies the effects of the problem, the US should consider switching to a slightly more service-based economy. Traditionally, the Chinese Yuan was pegged very closely to the US Dollar. This means that the governments made the necessary economic changes to maintain the same exchange rate. Eventually, in July 2005, the peg to the Dollar was removed, and a floating exchanging rate emerged. This means that the macro-economic policy was no longer directed at maintaining the same exchange rate, but rather the exchange rate can change. Thus it floats. The Yuan was undervalued towards the Dollar, a situation that precipitated the change to a floating exchange rate. However, the United States is now claiming that the Yuan has not appreciated enough (8% since the change), and that the Chinese government is still keeping the Yuan grossly undervalued (40%). This is to the point where Congress has asked the US Treasury to label China a currency manipulator.
What US Congress wants the Chinese to do is revalue their currency. The US claims the exchange rate is hurting their foreign debt by inflating it. The fruitless efforts of the US Treasury Secretary has led Congress to pass a bill calling for the revaluation of the Yuan or subsequent trade tariffs of 20%.
This is quite obviously a form of protectionism, where the US is using trade tariffs as the method. The apparent motives for this is to stabilize the balance of payments and to protect employment. China currently holds US$232.5 in debt, and the US hopes that by imposing the trade tariffs, their trade deficit will decrease, and they will be able to regain control of their foreign debt. Also, the politicians want to stop all of the factory jobs flushing to China. By imposing trade tariffs, the Chinese goods become more expensive, so the consumers will buy more American-made goods.
However, these tariffs carry with them great risks. These are risks that will ultimately hurt the US. Firstly, it is worth mentioning that the United States of America is rather dependant on China, trade-wise. Since the US is one of China's biggest customers, the tariffs will firstly hit American consumers. The price level will rise because of this international tax, and the American firms will become less competitive. Also, there is the potential threat of retaliation from China, which may result in a trade war. This will hurt both the United States and China.
These tariffs would thus hurt the US, and create more foreign debt, higher inflation and less competitive American firms. This is exactly what the US wanted to avoid by imposing these tariffs. The opportunity cost of imposing the tariffs and the resulting carnage aftermath is greater than the status quo. It is quite obvious here that the US is trying to maintain a market share in manufacturing. However, it is also quite obvious that China has a comparative advantage in this industry. Thus, instead of adopting protectionism, which only delays and magnifies the effects of the problem, the US should consider switching to a slightly more service-based economy.
What US Congress wants the Chinese to do is revalue their currency. The US claims the exchange rate is hurting their foreign debt by inflating it. The fruitless efforts of the US Treasury Secretary has led Congress to pass a bill calling for the revaluation of the Yuan or subsequent trade tariffs of 20%.
This is quite obviously a form of protectionism, where the US is using trade tariffs as the method. The apparent motives for this is to stabilize the balance of payments and to protect employment. China currently holds US$232.5 in debt, and the US hopes that by imposing the trade tariffs, their trade deficit will decrease, and they will be able to regain control of their foreign debt. Also, the politicians want to stop all of the factory jobs flushing to China. By imposing trade tariffs, the Chinese goods become more expensive, so the consumers will buy more American-made goods.
However, these tariffs carry with them great risks. These are risks that will ultimately hurt the US. Firstly, it is worth mentioning that the United States of America is rather dependant on China, trade-wise. Since the US is one of China's biggest customers, the tariffs will firstly hit American consumers. The price level will rise because of this international tax, and the American firms will become less competitive. Also, there is the potential threat of retaliation from China, which may result in a trade war. This will hurt both the United States and China.
These tariffs would thus hurt the US, and create more foreign debt, higher inflation and less competitive American firms. This is exactly what the US wanted to avoid by imposing these tariffs. The opportunity cost of imposing the tariffs and the resulting carnage aftermath is greater than the status quo. It is quite obvious here that the US is trying to maintain a market share in manufacturing. However, it is also quite obvious that China has a comparative advantage in this industry. Thus, instead of adopting protectionism, which only delays and magnifies the effects of the problem, the US should consider switching to a slightly more service-based economy. Traditionally, the Chinese Yuan was pegged very closely to the US Dollar. This means that the governments made the necessary economic changes to maintain the same exchange rate. Eventually, in July 2005, the peg to the Dollar was removed, and a floating exchanging rate emerged. This means that the macro-economic policy was no longer directed at maintaining the same exchange rate, but rather the exchange rate can change. Thus it floats. The Yuan was undervalued towards the Dollar, a situation that precipitated the change to a floating exchange rate. However, the United States is now claiming that the Yuan has not appreciated enough (8% since the change), and that the Chinese government is still keeping the Yuan grossly undervalued (40%). This is to the point where Congress has asked the US Treasury to label China a currency manipulator.
What US Congress wants the Chinese to do is revalue their currency. The US claims the exchange rate is hurting their foreign debt by inflating it. The fruitless efforts of the US Treasury Secretary has led Congress to pass a bill calling for the revaluation of the Yuan or subsequent trade tariffs of 20%.
This is quite obviously a form of protectionism, where the US is using trade tariffs as the method. The apparent motives for this is to stabilize the balance of payments and to protect employment. China currently holds US$232.5 in debt, and the US hopes that by imposing the trade tariffs, their trade deficit will decrease, and they will be able to regain control of their foreign debt. Also, the politicians want to stop all of the factory jobs flushing to China. By imposing trade tariffs, the Chinese goods become more expensive, so the consumers will buy more American-made goods.
However, these tariffs carry with them great risks. These are risks that will ultimately hurt the US. Firstly, it is worth mentioning that the United States of America is rather dependant on China, trade-wise. Since the US is one of China's biggest customers, the tariffs will firstly hit American consumers. The price level will rise because of this international tax, and the American firms will become less competitive. Also, there is the potential threat of retaliation from China, which may result in a trade war. This will hurt both the United States and China.
These tariffs would thus hurt the US, and create more foreign debt, higher inflation and less competitive American firms. This is exactly what the US wanted to avoid by imposing these tariffs. The opportunity cost of imposing the tariffs and the resulting carnage aftermath is greater than the status quo. It is quite obvious here that the US is trying to maintain a market share in manufacturing. However, it is also quite obvious that China has a comparative advantage in this industry. Thus, instead of adopting protectionism, which only delays and magnifies the effects of the problem, the US should consider switching to a slightly more service-based economy.
Tuesday, May 22, 2007
Exchange Rates
Ceteris Paribus
The determinants for exchange rates are;
- If the demand for a nation's currency increases, that currency will appreciate.
- If the supply of a nation's currency decreases, taht currency will appreciate.
- If a nation's currency appreciates, some foreign currency will depreciate relative to it.
This means that in the years of 2002-2005, the Euro has appreciated relative to the RMB, or, the RMB has depreciated relative to the Euro.
Monday, May 14, 2007
From Unemployment to Investment
Since a relationship with unemployment will be rather hard to substantiate, I've decided that it might be better to look at investment into the Netherlands, more specifically perhaps, in the electronics area. Philips is a large Dutch electronics company. This could be a potential goldmine of economic theory.
Technically, when your currency is stronger, you are able to import more. Therefore you are able to buy more technology, and thus investment in Dutch Companies R&D departments should have increased.
Technically, when your currency is stronger, you are able to import more. Therefore you are able to buy more technology, and thus investment in Dutch Companies R&D departments should have increased.
Saturday, May 12, 2007
MR WELKER!!! READ THIS!!!
Here we can see that the Euro has become stronger relative to the Chinese Yuan.The graph shows the value of the Chinese Yuan against 1 Euro in the last 5 years.
Netherlands Bureau for Economic Policy Analysis
Topic: press release
Number: 23
Date: March 21, 2006
(The three paragraphs cited do not necessarily come in order. Bold citations are present to emphasize information. They are not so in the original.)
Dutch economy is reviving thanks to more exports.....
CPB expects economic growth in the Netherlands to be 2.75% this year, accelerating to 3% in 2007. Exports will gain momentum as a result of growth recovery in Europe. Furthermore, the Dutch competitive position can improve somewhat, after five years of decline. Unit labour costs decrease faster than those of the competitors, thanks to the modest development of wages and the depreciation of the euro from $ 1.24 in 2005 to, on average, $ 1.20 this year and the next. Domestically produced exports will show the highest growth rate thus far in this decade. Partly as a result of the ascent of the Chinese economy in the world economy, re-exports will probably continue to grow by double digits. The value of re-exports will even surpass that of 'made in Holland' exports next year.
Unemployment has passed its top and decrease again
The number of people looking for a job has been declining steadily since the end of 2005.The number of jobs has also started growing again in the course of last year, especially because of a rise in the number of temporary workers. CPB expects employment to show a strong recovery this year and the next. As a result, unemployment will decrease by 115 000 jobs, to 5% of the labour force in 2007. This decrease is stronger next year than in 2006, because employment always reacts to production with some delay.
Purchasing power is picking up
After three years of a decline, purchasing power will probably show a positive development - at least on average: 1.5% in 2006 and 0.75% next year. Real wages are increasing and the burden on households will be eased this year. However, due to the new medical insurance system, differences in real net income development are substantial.
Interesting, but what does this all mean? Obviously we haven't covered exchange rates yet, but I can see that there may be a relationship between the increasing strength of the Euro and the decreasing unemployment in the Netherlands.
Thursday, May 10, 2007
Ok, I think I got it now...
How about this as my topic:
Is there a relationship between the exchange rate of the Euro and the RMB, and the unemployment rate of the Netherlands, in the past 10 years?
specific? yes
interesting? yes
data exists? yes
could it work?
could it?
Is there a relationship between the exchange rate of the Euro and the RMB, and the unemployment rate of the Netherlands, in the past 10 years?
specific? yes
interesting? yes
data exists? yes
could it work?
could it?
Monday, May 7, 2007
EE Topic: High Unemployment in Europe - Result of Deficient Aggregate Demand, or Socialist policies?
Mr Welker,
Shall I just do an extended essay looking into the cause for the high NRU of Europe? We already discussed it a little bit in class, and it seems really interesting.
Shall I just do an extended essay looking into the cause for the high NRU of Europe? We already discussed it a little bit in class, and it seems really interesting.
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