China’s president, Hu Jintao, stated this past weekend that the international flexible exchange-rate financial system is unfair and a “product of the past,” and that actions taken by the U.S. Federal Reserve have led to rising inflation rates in China.
Hu went on to say that the international financial system should reflect the changing status of developing countries in the world economy. In addition, he criticized the Federal Reserve, saying that “the liquidity of the U.S. dollar should be kept at a reasonable and stable level."
However, Hu failed to comment on the fact that government officials in his country have chosen to essentially peg China’s currency to the exchange-rate of the U.S. dollar, and that by doing so China benefitted substantially during the past nine years from the decline in the value of dollar.
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I’m not at all surprised by Hu’s comments because his statements exemplify the strategy that is often used by communists, socialists, and so-called "liberal” politicians when things don’t go their way – to blame someone else for their problems and their status in the world. I say that because no one is preventing China from letting market forces determine the value of its currency.
In truth, China is very happy that the exchange-value of the U.S. dollar has trended lower since the beginning of 2002. That’s because the decline in the dollar has been accompanied by a corresponding decline in the exchange-value of the Chinese yuan, which has ensured that consumers around the world have continued to increase their demand for inexpensive Chinese products and services.
If, on the other hand, China had let market forces determine the value of its currency, there’s a good chance that the yuan would have appreciated during the past couple of years, that the prices of Chinese goods and services outside of China would therefore have risen, and that China’s exports would have likely declined.
Unfortunately, no one in our government has been willing to stand up to the Chinese by suggesting actions that would force China to un-peg its currency to the U.S. dollar.
I say enough is enough, and I suggest for everyone who reads this article to write to and phone your congressional representatives today – yes, today – and to insist that those so-called “representatives” take action immediately to force the Chinese government to stop manipulating the United States.
An example of the type of action that I’m suggesting would be for Congress to implement laws that would likely cause the prices of Chinese goods to rise if China doesn't let market forces determine the value of its currency.
Specifically, I’m suggesting that Congress should enact tariffs on imports from China until China lets its currency float freely in the financial markets.
Although such an action would likely lead to a trade war with China, my research suggests that China has a lot more to lose than the United States by the imposition of tariffs.
About the Author: David Frazier
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