China has been dominating the news cycle this week after it was announced that the People’s Bank of China (PBOC) would devalue its yuan by two percent. This generated shockwaves throughout stock markets, and prompted certain presidential candidates – ahem, Donald Trump, ahem – to vehemently condemn the move.
As we reported Wednesday, Trump feels such a move is meant to “devastate” and “destroy” the U.S. Trump has made China the centerpieces of his campaign strategy.
But as public officials, presidential candidates and financial experts criticize China’s move, one economist suggests that it’s actually a form of foreign aid for the United States.
Mark Perry, scholar at the American Enterprise Institute (AEI) and a professor of economics and finance at the University of Michigan, opines in a blog post that currency manipulation and yuan devaluation is actually very beneficial for Americans, particularly low-income consumers. He argues that undervaluation of the yuan and the overvaluation of the U.S. dollar is saving American consumers and businesses billions of dollars per year.
Essentially, China is sending hundreds of billions of dollars worth of clothing, footwear, furniture, electronics, toys and appliances – manufactured through its labor, resources and capital – to the U.S. at a very cheap price. Rather than giving it us to for free, China is providing bargain basement prices. Let’s face it: the U.S. doesn’t manufacture much like it used to so perhaps this is an attractive move.
Here are Perry’s four points:
1. China’s currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially low-income groups, and to the direct advantage of thousands of American companies buying inputs from China.
2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, which would reduce our overall standard of living.
3. Like other forms of mercantilism and protectionism, forcing or pressuring China to appreciate its currency would favor certain domestic producers over millions of consumers and import-buying companies, but would make the United States worse off, not better off.
4. Finally, instead of complaining, we should be thankful for China’s foreign aid to Americans through an undervalued yuan and overvalued dollar, and for the undervalued goods that collectively save American consumers and companies billions of dollars every year.
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