Is Pressure on China a Good Idea?

Here’s an interesting topic discussed in this Bloomberg article– the idea of pressuring China to let the yuan float and appreciate (i.e., nix their current system that pegs the yuan to the US Dollar).  The primary thrust is coming from pro-labor (union) politicians in an attempt to level the playing field for US blue-collar workers who are competing with Chinese labor.  

At face value, this seems like it might be a good idea.  Afterall, by keeping the yuan from appreciating, Chinese made goods remain relatively cheap to US made goods.  Currently $1 US Dollar buys more goods than it would if it the yuan appreciated.  But here’s the problem, the cost of labor is a supply/demand issue, and China has the largest supply of “unskilled” labor in the world, regardless of what the yuan does.  Sure, if the yuan decoupled from the dollar Chinese goods may seem more expensive and US made good cheaper in the short-term, but in the long-term, labor wages in China would adjust and the overwhelming supply of labor would drive down wages as the real value of the wages increases (as the yuan appreciates).   Concurrently, it would give the Chinese more buying power to buy up US assets on the cheap, thereby reallocating more wealth to the Chinese.  Maybe we could use that help in the real estate market but remember how nervous it made everyone when the same thing happened with the Japanese back in the 80’s.  Either way, it’s not going to bring low value-add jobs back to the US….. they’re gone for good.

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