China-bashing on the yuan a disgraceful political move
by diane ling
Take one look at recent international headlines and you know that China-bashing is back in fashion. China once more is being blamed for everything going wrong in the U.S., from job losses to poisoned food and toys. Granted, some of the criticisms may be warranted – such as those on its spotty human rights track record and its notable lack of democracy. But the surge of politicians blaming China’s supposed manipulation of its currency exchange rate for the U.S. recession is just downright sad. With all this China-bashing, it seems as if the yuan were the sole source of all the U.S.’s economic problems!
This egregious trend is not only misguided, it endangers the U.S.-China relationship, and furthermore, has the potential to create tension between Chinese Americans and the rest of the U.S. population.
The rhetoric of China-bashing is omnipresent in the media, but is used particularly heavily by labor unions such as the AFL-CIO, who are ever anxious to invoke protectionist principles in order to decrease foreign competition, and by Democrats, who seek the electoral support of the labor unions.
The accusations are coming from all levels of Washington. This March, President Obama urged China to adopt “a more market-oriented exchange rate.” Shortly afterward, 130 Congress members signed a letter to the Treasury demanding that unless China lets the yuan rise in value, the U.S. impose tariffs on Chinese goods – wonderful, let’s start a trade war between the two largest economies in the world.
Critics of China’s current exchange rate policy claim that China is keeping the yuan undervalued in order to gain unfair advantages in international trade. A cheaper yuan makes Chinese goods less expensive in the United States and American goods more expensive in China. This apparently encourages Americans to indulge in cheap imports from China, critics say, making business more difficult for American producers.
However, the situation is more complex than many critics make it seem. For one, the apparent loss to American producers is coupled with a gain for the millions of American consumers who prefer to pay less for their goods.
I do not think that China has been pursuing an unfair currency policy. China follows a fixed exchange rate system, in which the value of the yuan is pegged to the dollar. There is nothing inherently wrong with this policy. Contrary to Obama’s statement above, a recent Wall Street Journal article explained that “there is no free market in currencies, as there is in wheat or bananas. Currencies trade in global markets, but their supply is controlled by a cartel of central banks, which have a monopoly on money creation.”
A fixed exchange rate system is in fact used in numerous other countries, including most of Europe. Why? In order to reap the benefits of stable exchange rates. This is what China is doing, and for over a decade it has been a boon to the world economy, leading to increased international trade, higher U.S. living standards due to availability of cheaper imported goods, and economic uplift for tens of millions of Chinese.
Even the U.N. Conference on Trade and Development has supported China’s control of the exchange rate, stating that China has “done more than any other emerging economy to stimulate domestic demand in order to mitigate the crisis.” It advised China not to give in to pressure from Western countries. This international stance certainly says something about the direction the U.S. is going with this currency-bashing.
Stanford professor and renowned economic expert Ron McKinnon says that forcing China to appreciate the yuan is ultimately a misguided economic policy. He urges economists and politicians to “discard the false theory that one can use changes in the exchange rate to control the net trade balance in a predictable way.”
In fact, McKinnon says, the huge trade imbalance between the U.S. and China does not have anything to do with the exchange rate. Instead, it is largely caused by the discrepancy in investment and savings rates between the two economies. In the last decade, the real personal saving rate in the U.S. has been near zero, while that of China has been between 30 and 40 percent.
Perhaps the best way to begin fixing the trade deficit with China is by admitting that the U.S. has been living beyond its means for decades. Unless Americans change their investment and savings rates on an aggregate level, the trade deficit is not going to change.
Another point to ponder is the fact that the savings China accumulates through trade with the U.S. are invested in U.S. Treasury securities. According to one of our own Congress reports, “given its relatively low savings rate, the U.S. economy depends heavily on foreign capital inflows from countries with high savings rates (such as China) to help promote growth and to fund the federal budget deficit.”
So when U.S. politicians complain about the undervalued yuan, their message to the Chinese essentially translates to: Stop lending us money.
The U.S. anti-China sentiment resulting from China-bashing in the media does not bode well for the future of either nation. Both nations are inextricably intertwined in an international relationship of immense global significance. Moreover, clear changes in the power dynamics of this relationship have emerged in the 21st century. While China has depended greatly on the U.S. in the past, experts warn that this dependence on the U.S. is decreasing as China strengthens its ties with other nations. At the same time, the U.S. is becoming increasingly dependent on China in multiple respects, including the foreign investments mentioned previously.
Both nations must learn to adjust to this ongoing shift in the distribution of global power. China will need to exert caution in how it presents itself as a rising global superpower, avoiding policies that may be seen as a threat to global stability or hurt long-term national interests. Meanwhile, the United States must learn to display a more humble attitude toward China, instead of viewing it as an easy scapegoat to pile insults upon for the purpose of garnering votes at home. As Washington attempts to sift through its enormous budget deficits, it would behoove politicians to think carefully before creating an enemy out of one of the nation’s biggest creditors.
As a country, we need to strive for a mutually beneficial instead of an antagonistic relationship with China. Instead of viewing China as a rising enemy to be stifled, we need to view it as a valuable partner to cooperate with on solving imminent global issues.
Yet that is not happening, as current media sentiment makes clear. Much as some would like to deny it, racial attitudes still lurk behind U.S. politics involving China and other Asian nations, and by extension, that involving Asian Americans. The concept of “Western is best” is consistently reflected in American foreign policy as well as in the attitudes of much of the general American public.
As Asian Americans, we have much at stake in a stable and positive U.S.-China relationship. Hostile national attitudes toward Asian nations often translate into racially motivated incidents of physical and intellectual violence against Asian Americans. This fact was brought to light most plainly in the infamous case of Vincent Chin, a Chinese American man beat to death in 1982 by Detroit auto-workers who thought he was Japanese and who were resentful of the job losses caused by the success of Japanese car manufacturers in America.
In another illustrative case, during the Cold War the U.S. saw China as an idealogical enemy to be contained by all means. This resulted in the racialization of national security: Chinese Americans became suspected internal enemies and national security risks by virtue of their racial origin.
These historical examples demonstrate the oft-underplayed but key role that race plays in linking U.S. diplomatic policies toward Asia with the treatment of Asian Americans domestically.
So when when we have high-profile individuals like CNN commentator Jack Cafferty calling the Chinese a “bunch of goons and thugs,” how detrimental is that to the image of Chinese Americans here at home? How much more absurd, ignorant, and racist can voices in public media get?
It’s a shame that U.S. politicians and the U.S. media are choosing to walk the path of China-bashing for the sake of carrying out their own political agendas. Not only is such propaganda a poison to American citizens’ minds, it endangers our national relationship with an important rising country that we cannot afford to create an enemy out of, and it creates a leeway for domestic anti-Asian American sentiment – which we can very little afford either if we wish to retain our image as a progressive, respectable modern nation that practices what it preaches.
 The Yuan Scapegoat. (2010, March 18). The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052748704743404575127511778280940.html.
 Koo, G. (2010, March 25). Opinion: Senators find China bashing easier than making good policy. Mercury News. Retrieved from http://www.mercurynews.com/opinion/ci_14758898.
 McKinnon, R. I. (2009, February 13). China’s Dollar Link Could Be a Depression Stopper. Wall Street Journal. Retrieved from http://online.wsj.com/article/SB123448695637080213.html.
 Llosa, A. V. (2009, February 2009). End the China Bashing. Real Clear World. Retrieved from http://www.realclearworld.com/articles/2009/02/end_the_china_bashing.html.
 CRS Report for Congress. (2008, January 9). China’s Holdings of U.S. Securities: Implications for the U.S. Economy. Retrieved from http://fpc.state.gov/documents/organization/99496.pdf.
 Beck, Lindsay. (2008, April 17). China calls for “sincere apology” from CNN. Reuters. Retrieved from http://www.reuters.com/article/idUSPEK27931220080417.