HOST: High level meetings between U.S. and Chinese officials get underway today. Among the items on the agenda — America’s big trade deficit with China and currency exchange rates. Critics say China’s manipulated the yuan to sell more products on the global market.
But what exactly does that mean?
Marketplace’s China Bureau Chief Rob Schmitz reports.
Rob Schmitz: So you’re going on a trip to China and you need to change some money. All things being equal, one of your dollars should buy four yuan. That’s what economists at the IMF say is the fairest exchange rate, given the countries’ finances.
But not all things are equal.
In fact, if you ask your bank to change $1 into Chinese currency today, you’d get more than six yuan.
That seems like a good thing — maybe you could buy some more stuff on your trip. But, on the global scale, an undervalued currency means China can export its products at cheaper prices, which, according to many members of Congress, puts American manufacturers at a disadvantage.
In fact, China has been raising the value of the currency in recent years. But according to economist Andy Rothman, not everyone’s happy with the pace.
Andy Rothman: The party’s approach is: gradual, slower is better. It’s less risky than doing things abruptly. And they would argue that a 5 to 7 percent appreciation pace every year, which is what they did between 2005 to 2008 and again today, is actually not so slow.
But Chinese officials will hear a very different opinion this week, as they sit down with their American counterparts.
In Shanghai, I’m Rob Schmitz for Marketplace.
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