You are here

China’s Currency & U.S.-China Relations

China’s Currency & U.S.-China Relations

Monday,  5 April 2010

This event featured panelists Robert Z. Aliber, emeritus professor of international economics and finance at the Graduate School of Business at the University of Chicago; Daniel Rosen, adjunct associate professor at Columbia University and visiting fellow with the Peterson Institute for International Economics (PIIE); and Shang-Jin Wei, professor of finance and economics and N.T. Wang Chair in Chinese Business and Economy at Columbia Business School. Professor Janow moderated this panel discussion, which centered on China’s currency as pegged to the USD and implications for the future of U.S.-China relations.

Professor Janow opened by briefly noting the escalation of tensions between the United States and China on a number of issues including trade, arms sales to Taiwan, and the yuan. The Chinese yuan has been pegged to the USD since mid-2008 and there exist a variety of views within the United States and China on how much and how soon the yuan should appreciate.

Professor Aliber reviewed China’s phenomenal average annual growth rate for the last thirty years of 14 percent in the traded goods sector and eight percent in the non-traded goods sector. He argued that China’s large trade surplus, 5% of GDP, combined with massive amounts of international reserve assets, $2,600 billion, have resulted primarily from China’s policies of financial repression which were adopted to maintain its undervalued currency.  He believes that as long as China continues to grow rapidly and productivity in the traded goods sector remains strong, the Chinese yuan’s real appreciation is inevitable. In the end, the government faces a complex series of trade-offs that involve the nominal appreciation of the yuan, an increase in the consumer price level, and consequences resulting from further financial repression. He argued that financial repression cannot be a long-term equilibrium situation, considering Japan’s failed usage of repression policies in the past. If China is not willing to reduce its bilateral trade surplus with the United States, he believes the U.S. government should adopt its own measures to lower the imbalance.

Professor Rosen then outlined the three main allegations against an unappreciated yuan: (1) its contribution to external imbalances in the United States; (2) its role in allowing China to accumulate an unnatural level of power; and (3) its ability to cause global imbalances which prevent the existence of a stable global economy. He then discussed the comparison between China and Japan in the 1980s, the true cause of the U.S.-China trade imbalance, and his recommendations for future policy. He believes that even if the yuan is allowed to appreciate, it will not solve the fundamental trade imbalance between the United States and China. He concluded that the United States needs to consume less, save more, and generate higher GDP growth to shift its net imports lower.

Professor Wei believes that the yuan’s appreciation and its effects on the U.S. current account deficit and American job market are greatly exaggerated. Instead he believes there are structural factors behind the imbalances. For example, since the United States has bilateral trade imbalances with 140 economies, a reduction in the yuan may not reduce the imbalance as much as people claim. Furthermore, if the yuan appreciates and China’s exports decrease, the jobs will more likely be transferred to Cambodia rather than California, so it wouldn’t affect the American job market very much. Finally, if the yuan appreciates, there will be winners and losers in both the United States and China. In the United States, the winners will be the export firms, while the losers will be the majority of the poor who will no longer be able to buy imports from China at lower prices. In China, the winners will be importers and the majority of the poor while the losers will be exporters. Therefore, the appreciation of the yuan implies a subsidy from the working poor in the United States to those in China.

The panel discussion ended with a lively question and answer session. Ultimately, while there were varied opinions on how the U.S.-China bilateral trade imbalance can be resolved, Professors Aliber, Rosen, and Wei were all in agreement that the yuan should be allowed to appreciate and that policies must be made on both sides of the Pacific to resolve the growing trade imbalance. 

This event was co-sponsored by IFEP as part of its Distinguished Speaker Series.



Contact Us

APEC Study Center at Columbia University
Columbia University, 3022 Broadway
2M-9 Uris Hall
New York, NY 10027-7004

The Curl Ideas to wrap your mind around

Henry Kravis Increases Gift to $125 Million, Adding to Manhattanville Fundraising Momentum

Henry Kravis ’69 is celebrating Columbia Business School’s Centennial anniversary and contributing to the School’s future by generously increasing his gift to $125 million, up from $100 million, to help fund the new Manhattanville Campus.

Read More >

Inaugural Centennial Showcase in New York Draws Hundreds of Attendees

Over 400 alumni and friends of the School gathered on Wednesday, September 16, to commemorate the School's Centennial, reflect on past achievements, and hear more about what's to come.

Read More >

Columbia Business School Partners with Industry to Create New Immersion Experience for Students

Immersion Seminar opportunity allows students to discuss real-world challenges and strategy with top practitioners across a range of industries.

Read More >

Fast Forward: Shazi Visram '04

As part of the School's Centennial celebration, alumni leaders offer predictions about the future in business and beyond.

Read More >

Why Shadow Banking in China Matters

When official avenues of financing are blocked off, companies have little recourse but to turn to shadow lenders. This excerpt from a new Chazen Institute white paper explains why.

Read More >

In Central America, Investing for a Greater Good

While a student at Columbia Business School, Arnoldo Villafuerte ’72 learned about and came to believe in the strong impact of private investment not just on the economy but on the social fabric of a community.

Read More >

Classes Kick Off Amid Centennial Excitement

Both the Class of 2016 and the Class of 2017 — known collectively as the Centennial classes — plan to make the most of their time on campus during the School's landmark anniversary.

Read More >

50 Shades of Green

How cultural differences between developed and emerging markets help – or hurt – the push for environmentally friendly policies

Read More >

The First Alumni Club

Nearly 40 years ago, alumni in the New York metropolitan area came together to build what would become a cornerstone of the Columbia Business School community: the first alumni club.

Read More >