I’m amazed at the persistence, with which American policymakers keep blaming China for its economic vows. Meanwhile, we finally received a response to US’s continuing whining about undervalued Renminbi from the China’s Foreign Ministry: “We believe the appreciation of the renminbi cannot bring about balanced trade and cannot help the U.S. solve its own problems of unemployment, overconsumption and a low savings rate”.
I’m inclined to agree with all three factors outlined in this statement, perhaps to a slightly lesser degree with cheap RMB’s impact on US unemployment. There might be indeed some revival if it were not for the Chinese currency. But US exports are not cheap anyway, given Euro’s record lows and weakening purchasing power in Europe. Plus, there is a host of new industrial powerhouses competing with China, such as Vietnam, Indonesia, India etc. flooding the US with shoddy clothes and other low value added goods.
The impact of overconsumption and low savings rate is indisputable. Those were the root causes of the financial crisis and continue to sink the country deeper into debt. Joe the Plumber himself back in good old days would get several cars and a house he could never afford even with his GM salary.
But there is another point the Chinese foreign ministry spokesman did not highlight. The US is a postindustrial nation. As simple as that. It will not be and should not try to revive its blue collar work force. The US’s competitive advantages are high-value added good, financial services, R&D etc. US manufacturing corporations that have put their major stake in developing markets abroad will be get a hedge. Thus, any attempt to appeal to Joe is a pure populism.
China, in fact, is on track to appreciating its currency. It needs to mitigate its excessive trade surplus and resulting overdependence on exports. It just had to boost exports in the wake of the crisis, since it was the only way to stay afloat.