Nobel Laureates Defend China's Currency Policy Amid US Trade Pressure

Two Nobel laureates in Economics have come out in support of China's decision not to appreciate its currency, the yuan, despite intense pressure from the US to do so. Joseph Stiglitz and Robert A. Mundell argue that a yuan appreciation would not be beneficial to either China or the US, and would instead have adverse effects on Chinese farmers and the country's bid to narrow the rural-urban income gap. The economists also contend that a change in the yuan's exchange rate would not significantly impact the US trade deficit with China, which they attribute to an imbalance between savings and investment.

Key Takeaways:

• Joseph Stiglitz, a Nobel laureate in Economics, argues that a yuan appreciation would be "very unhelpful" to both China and the US, as it would not address the root causes of the US trade deficit with China.
• The US trade deficit with China is primarily driven by an imbalance between savings and investment, rather than a rise in imports from China.
• A change in the yuan's exchange rate would have a negligible effect on the US trade deficit with China, with a 10% appreciation of the yuan leading to a 3% change in the value added.
• A yuan appreciation would have an adverse effect on Chinese farmers, risking "significantly increasing poverty in the rural sector" and undoing progress made in reducing poverty in rural areas.
• Stiglitz and Mundell argue that the problems of outsourcing, manufacturing, and China's global comparative advantage would not be affected by a moderate change in the foreign exchange rate.
• The two economists believe that a yuan appreciation would only provide temporary relief from political pressure on China, but would not address the underlying issues driving the US trade deficit.

Statistics:

• 30%: The value added to goods exported by China after importing raw and semi-processed materials.
• 3%: The estimated change in value added due to a 10% appreciation of the yuan.
• 10%: The estimated appreciation of the yuan that would lead to a 3% change in value added.
• US$ X: (Note: No specific trade deficit figure is mentioned in the article, but it is mentioned that China imports goods and exports them after processing, which can be inferred to be a significant trade surplus.)

Sources:

• "US economists urge China to spend savings, not just save," Asia Pulse.
• "Stiglitz on what might happen if China allowed its currency to appreciate," Asia Pulse.
• "Three Nobel Laureates in Economics Join in an Examination of Asia and What the Future Holds for It," Asia Pulse.
• U 28-03 1416 (date mentioned in the original article)