| China and the United States are very important trading partners. They have not agreed or every issue, but that hasn't gotten in the way of their trading relationship. There is one issue that could possibly derail their relationship; China's exchange rate. In 1994, China decided to go to a fixed exchange rate. The results of going to the fixed exchange rate for China have led to a multitude of changes between the two countries. China's exports to the United States began to increase dramatically after changing their monetary policy in 1994. The United States, at the same time, started to lose the market share in certain manufacturing areas and increase their trade deficit. The linkage between manufacturing jobs loss in America and China's fixed exchange seem to be linked.;I studied numerous Congressional Bills that were introduced in both the United States House of Representatives and United States Senate that dealt with offsetting the harmful cause of China's fixed exchange rate. I also read Treasury reports on currency exchange, along with both GAO and CRS reports on the topic. In addition to those publications, I read books, newspaper clippings, journals, and study papers on the topic at hand.;I was able to deduct from all of the various Government publications and academic publications that China's exchange rate was causing the American manufacturing sector to loss more jobs due to the unfair advantage in making their exports much cheaper. It was also clear that the American manufacturing sector had been losing jobs before China started to manipulate their currency. The U.S. Treasury Department has taken a quiet approach in trying to get China's exchange rate to be more market-based. On the other hand, the U.S. House and Senate have been vocal in their opposition of China's currency exchange rate.;In conclusion, the problems that exist between China and the United States because of the exchange rate will not be going away anytime soon. The Treasury Department or the U.S. Congress can label China as a "manipulator", but China must act. The reasoning behind their shift to a fixed exchange rate was to give them a trading advantage by making exports cheaper and imports more expensive. If China believes that by allowing their currency to appreciate, and continue to grow economically, then they will do that. Ultimately though, they are the deciders. |
