US-China Trade: Only A Temporary Reprieve

Derek Scissors / April 02, 2010

Today’s papers give the impression of a collective exhale on U.S.-China relations. Chinese President Hu Jintao is coming to Washington for a global nuclear security summit and that means a trade war over exchange rates has been averted.

However, a better term than “averted” is “postponed.”

It is probably true that Washington and Beijing have an agreement: the U.S. will not label the PRC a currency manipulator and China will make some sort of policy change at or before the end of the bilateral Strategic and Economic Dialogue in late May. Unfortunately, a change in policy concerning the RMB (a.k.a. the yuan) will have little effect on trade and will not be enough to pacify Congress.

CATO’s Dan Ikenson has a good op-ed in The Wall Street Journal pointing out the small net impact on the American economy of previous changes in the value of the RMB. The value of the RMB just isn’t very important to American jobs. It’s hard to connect trade with just one country to the jobs picture in the U.S and, even if there is a connection, the Sino-American trade deficit doesn’t actually drop when the RMB rises. (more…)