Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, June 10, 2005

Chinese Revaluation Won't Help U.S. Producers least not much

Ben Carliner at Cynic's Delight makes the point that if the Chinese revalue their currency much foreign trade involving the U.S. will simply shift to other countries.

If China does adjust in this way, who are the winners and losers? The US will not benefit much from an adjustment in the real renminbi exchange rate. First, Chinese goods will suffer more of a decline in competitiveness compared to other exporting nations than to US products. So the overall US trade deficit will not decline, but merely shift to other countries. Second, if the Chinese really do succeed in boosting domestic demand and decrease their trade and current account surpluses, this means they will stop buying so many US Treasuries, leading to higher interest rates in the US as demand for Treasuries falls.

The real winners are export industries in the rest of the world. Not only will rising Chinese demand increase their business, but they will become more competitive in industries in which they compete with the Chinese.
Cynic's Delight is an excellent blog that has had several good items about currencies recently.
I've added it to my list.

I thought Ben's name sounded familiar, so I wrote to ask him. Sure enough, I co-authored several papers with his dad, Geoff Carliner back in the 70s. Geoff's departure from UWO was a great loss.
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