From Yu Zuyaos View of China-US trade issues

It is often baffling to see economists disagree on a host of issues-- from a minor domestic policy to a more complex international commerce. Economists never agree on anything, has been used enough to become a clich. In explaining this never ending disagreement, a website run by a private educational foundation, Library of Economics and Liberty, noted that, economics, in and of itself, is not the source of the disagreement; what divides economists is rather public policy or politics (What is). Hence, distilling economic disagreements in to their essence demands a closer look at the political context behind the economic issue at hand. One such disagreement, perhaps the biggest economic dispute of our time, is the trade issue between the worlds two greatest economies, US and China. Economists from both nations, in line with their respective governments view, continuously voice opposing opinions on a rage of trade issues. A good illustration of such opinions is Yu Zuyaos The Crux of the Currency Dispute: China May not Be The Currency manipulator the United Sates Makes it out to be. A thorough analysis of this source requires not only fact checking of the economic figures, but also understanding the political concept that drives his argument. An objective analysis of his article will indicate that, while some of Zuyaos arguments are factually viable, a good portion of his claims are debatable, and his message in its entirety is politically charged. Yu Zuyao is a Chinese political economist and honorary president of the China Society of Socialist Economics Law. He was a former head of the Chinese Academy of Social Sciences (CASS), a government think tank. In The Crux of the Currency Dispute: China may not be the currency manipulator the United States makes it out to be, his main objective is to bring forth a

Chinese perspective of the highly disputed China-U.S. trade issues, and frame the United States as the actual instigator behind the currency dispute. Zuyao complains that the United States unyielding determination to label China as a currency manipulator is a stumbling block to the global effort on economic recovery. Contrary to the United States claim, however, China, he claims, has neither the objective condition nor the intention to manipulate currencies. More than any other nation in the world, the United States, he adds, with its GDP three times greater than that of China, and its currency--the dollar-- globally dominant, is uniquely situated to manipulate currencies. Zuyao continues to say, despite US claim, China is not responsible for the highly contested trade deficit between the two nations. The true cause of the trade deficit, he suggests, is the United States trade protectionism and deliberate manipulation of trade calculation. In his own words the crux of China-U.S. trade relations is not imbalance, but unfairness. Zuyao begins his article by noting that the financial crisis which hit the world economy in 2008 is the worst since World War II. Though recovery is in high gear the effect of the crisis still persists, hence nations around the world are engaged in paving the path to recovery, while the United States, Zuyao claims, seems to be tied up in instigating a trade and currency war with China. Accusing China of currency manipulation, he suggests, is not only unfair and irrational but also counterproductive to the recovery efforts. Zuyao argues that, China does not have the objective conditions to manipulate currencies on a global market, and its policy, contrary to the U.S. claims, is to allow its currency to float in the market in a step-by-step fashion. Chinas economy, he notes, is only 33% of the size of the United Sates; most of its exported products, which account for 10% of the international trade volume, have a low added value; and its currency-the Yuan- is not

international currency. The United States allegation that China is a currency manipulator, according to Zuyao, is anything but rational. Zuyao continues to say that China is in the process of taking the necessary steps to let its currency float in the market as a result the Yuan has already seen a 21% value increase against U.S. dollar in the last seven years. A range of sources will indicate that China has indeed taken certain steps to let its currency appreciate vis--vis dollar, and his raw data is correct. For instance, Wayne Morrison, a specialist in Asian trade and finance, and Marc Labonte, a specialist in Macroeconomic policy, in their 2010 report for U.S. congress, stated that the Chinese currency, renminbi (RMB), indeed appreciated against the dollar by about 21%, from July 2005 to July 2008. However, this same research by Labonate and Morison indicates that China stopped the appreciation of the RMB in the aftermath of the financial crisis. From July 2008 (four months after Zuyaos article was published) to late June 2010, China set the exchange rate at roughly 6.83 RMB to the dollar. In June 2010, China announced that the RMB would be allowed to continue to appreciate, subsequently, RMB showed about 2.9% rise in exchange rate to dollar. As far as the accusation, Labonate and Morison, explain that, given the Chinese exports fast growth and trade surplus, the United States criticized the sluggish appreciation of the RMB, and urged China to allow the market to decide the value of the RMB as soon as possible (5). Zayaos assertion, however, that Chinese Government has neither the objective conditions nor the intention to manipulate currencies, stands contrary to the views of many economists. As Paul Krugman, a Nobel Laureate Professor of Economics and International Affairs, explains, China started selling renminbi and buying foreign currencies in 2003, adding $ 46 billion to its reserve that year alone. In 2010 the surplus expanded to a staggering amount of more than $30 billion a month. All in an effort to keep the value of renminbi artificially low and

boost Chinese exports. According to Krugman this is the most manipulative currency policy ever taken by any major economy (A23). Zuyao next argues that the real cause of the China- US trade imbalance is not Chinas currency policy; instead the cause, he claims, is rooted in U.S. discriminatory trade policy. Unlike the U.S. which firmly restricts the export of hi-tech products to China, China, he claims, has always welcomed U.S. products and investments, since the 1978 economic reform. It is then, this unfairness of U.S. trade policy, he concludes, that eventually became the source of the trade imbalance. However, this idea is not accepted by many economists around the world. Greg Mastel, a vice president for policy planning and administration at the Economic Strategy Institute (ESI) and author of the book Chinas rising economy, and Andrew Z. Szamosszgi, a research associate at (ESI), plainly state that, the China- U.S trade deficit is a result of Beijings calculated intervention on its currency, trade, and foreign investment (202); a specialist in Asian trade and finance, Wayne M. Morrison, similarly notes that, since the bilateral trade agreement in July 1979 increasingly more goods were imported to U.S. than were exported to China. This huge trade deficit is driven by Chinas undervalued currency, he claims; hence, U.S. policy makers, Morrison notes, are blaming the Chinese government for deliberately tilting the scale of trade to favor their economic interest (1). Another specific issue that Zuyao has raised in is article is the scale of the trade deficit reported by US authorities. He claims that US reports are exaggerated, and the discrepancy he suggests, is a result of a different calculation methods applied by each nation. Zuyao argues that U.S. data is based on the assumption that all goods imported from China are credited to China. However, one in every five goods imported to the United States from China are produced by

American companies in China. Also, some Made in China labeled products are just re-exports from other countries, which U.S does not take in to account. Beijing, he notes calculates the trade surplus from the actual income that adds up into Chinas pocket. Some economists do in fact support Zuyaos claim on the United States method of trade deficit calculation. For instance, an investment strategist, and an author and founder of the Community of Liberty, Charles W. Kadlec, explains this discrepancy in trade deficit calculation using the iphone as an example. According to Kadlec, if the value of all imported iphones from China
is added to chinas credit, then just in 2009

iphone alone would account for a 1.9 billion trade deficit. But that is a wrong assertion argues Kadlec, and draws a distinction between a bottle of French-made-wine imported from France, and Chinese-assembled-iphone imported from China. For products such as wine, Kadlec says, the traditional method of calculating trade surplus/deficit still applies, but in an integrated global economy of modern times some products require different approach of trade estimation (1). As a source, then, this article provides a useful insight into the Chinese perspective of the highly disputed trade issues. It addresses the issue of currency manipulation, and articulates Chinas argument as to why the trade deficit between the US and China is increasing. The article, however, is grossly one-sided, and completely denies Americas concern, its due legitimacy. Zuyaos lack of academic neutrality in this article lends itself to his desire to politically persuade his readers. Nonetheless, the essence of Zuyaos argument is shared by the government of China, perhaps its public as well. A closer look at economic arguments, such as Zuyaos, gives a glimpse on the other side of the story and helps a reader to grasp the complexity of U.S.-China trade issues.

Works Cited Kadlec, Charles W. Don't Be Fooled By Misleading U.S.-China Trade Data Forbes.com. Forbes, 18 Jan. 2011. Web. 20 Mar. 2012. Krugman, Pual Taking On China New York Times 14 Mar. 2010, New York ed.: A23. Print. Labonte, Marc, and Morrison, Wayne M. Chinas Currency: A Summary of the Economic Issues Congressional Research Service (2009): Foreign Press Center. Web 20 Mar. 2012. Mastel, Greg and Szamosszegi, Andrew Z. "China's Growing Trade Surplus: Why It Matters." Washington Quarterly 20.2 (1997): 201. Academic Search Complete. Web. 9 Feb. 2012. Morrison, Wayne M. China-U.S. Trade Issues Congressional Research Service (2011): 1-3. American scientist Federation.Web. 7 Feb. 2012. What is economics? Library of Economics and Liberty. Liberty, Inc.1999-2011. 30 Mar. 2012. Zuyao, Yu. "The Crux Of The Currency Dispute. (Cover Story)." Beijing Review 53.14 (2010): 26-27. Academic Search Complete. Web. 7 Feb. 2012.