Monday, October 10, 2011

Currency manipulation and China

The Renminbi has increased about 7% in the last year. It has slowed recently as its is expected that the Chinese government wants to slow the appreciation until it knows what the US will do on trade restrictions. This is an interesting game of cat and mouse as the Chinese are willing to take the export hit from an appreciation but only if their goods can be sold across the world. 

Of course, the profit hit to Chinese companies is less clear than a trade restriction. An appreciation will reduce the cost of imported parts and make the exports more expensive. The result could be no change in exports.

It has been surprising that a trade war has not occurred yet but this lack of action does not mean that we are out of the woods when it comes to country policies to boost exports and GDP at the expense of others. 

No comments: