David Brancaccio: For decades the U.S. has been trying to persuade China to raise the value of its currency, arguing a lower yuan makes Chinese goods cheaper over here and hurts the trade deficit . It’s going to be a lot harder to make that case after a policy change at the International Monetary Fund.
From Washington, Marketplace’s John Dimsdale explains.
John Dimsdale: The IMF used to say China’s yuan was “substantially” undervalued. But in the last couple years, the currency has strengthened against the dollar by about 7 percent. So now the IMF says the yuan as only “moderately” undervalued.
Clyde Prestowitz at the Economic Strategy Institute says that hurts the American argument.
Clyde Prestowitz: In principle it shouldn’t. But in terms of public relations, of course it does, because it then looks like the U.S. is beating up on the Chinese.
Prestowitz says China’s currency remains significantly cheaper than the dollar, causing a persistent trade imbalance.
Prestowitz: The currency distortion effectively acts like a tariff on U.S. exports and a subsidy to U.S. imports. So it’s kind of a double whammy.
As for the yuan’s recent strength, Kelley Drye trade adviser Greg Mastel isn’t impressed.
Greg Mastel: It has appreciated moderately. You started from a really low level. And I think there’s still good evidence that its significantly undervalued.
He says Beijing bureaucrats, not markets, continue to set the Chinese currency’s value.
In Washington, I’m John Dimsdale for Marketplace.