William J. Holstein

China’s Revaluation: Did The Red Sea Part?
JUNE 26--I've waited a few days after China's announcement that it would allow greater flexibility in the movement of the yuan so see if any miracles had occurred.

Nope, doesn't look like it.

Washington policy-makers and the think tank/media crowd in Washington have been nattering away about the renminbi as if it were the source of all that is wrong in the U.S.-China relationship. If only we could get the Chinese to move on their currency, we would solve the lopsided trade imbalance etc. etc.

But first, China's announcement was a diplomatic move to get it through the G20 meeting, which worked like a charm. And secondly, even if it does follow through and allow its currency to appreciate, that is not going to address the structural nature of the U.S. trade deficit, nor is it going to single-handedly deter China from pursuing its ambitions of becoming an economic superpower.

We've seen this debate before, except that it was about Japan and its yen. We forced a major revaluation of the yen over the years but the Japanese adjusted their model, making more things in the United States and buying more U.S. assets.

China is going to do the same thing. As long as foreign companies from all over the world are using China as an export platform to reach the United States, the trade gap is going to persist. As long as American consumers demand the cheapest prices, the trade gap is going to persist. As long as major American manufacturers and retailers such as Wal-Mart have such a huge investment in manufacturing in China for the U.S. market, the trade gap is going to persist.

It's time to have a real discussion about the nature of U.S. relations with the powers of East Asia, rather than allowing our entire intellectual energies to be consumed in a false debate over the value of the Chinese currency.