Comments on: Exchange rates, currency manipulations, and the balance of trade http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/ for students and teachers of Economics Wed, 23 May 2012 04:39:58 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: The relationship between the Current Account Balance and Exchange Rates | The Economics Classroom http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-22035 The relationship between the Current Account Balance and Exchange Rates | The Economics Classroom Fri, 24 Feb 2012 16:29:36 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-22035 [...] Exchange rates, currency manipulations, and the balance of trade [...] [...] Exchange rates, currency manipulations, and the balance of trade [...]

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]]> By: Muhammet Murat SEKBAN http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19770 Muhammet Murat SEKBAN Mon, 12 Dec 2011 07:07:41 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19770 1.) How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners? To keep the currencies undervalued, the prices of the Chinese goods become cheaper in foreign countries. This means that they are able to export more compare to other countries, and their domestic economy will be developed. 2.) What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations? The main purpose of Chine for keeping the value of the RMB low is to keep the cost of production lower. So that the products are cheaper and as a result of high exports, the domestic manufacturing industries develop. 3.) What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America? Obama could put some tarrifs on Chinese goods in order to decrease the China’s comp. advantage, if the world trade organization doesn’t take action. Since the US consumers are choosing the lower priced products which are mostly the exports of China, the domestic firms are affected in a negative way. So, in order to protect them some protectionist actions can be taken. 1.) How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners?
To keep the currencies undervalued, the prices of the Chinese goods become cheaper in foreign countries. This means that they are able to export more compare to other countries, and their domestic economy will be developed.
2.) What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations?
The main purpose of Chine for keeping the value of the RMB low is to keep the cost of production lower. So that the products are cheaper and as a result of high exports, the domestic manufacturing industries develop.

3.) What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America?

Obama could put some tarrifs on Chinese goods in order to decrease the China’s comp. advantage, if the world trade organization doesn’t take action. Since the US consumers are choosing the lower priced products which are mostly the exports of China, the domestic firms are affected in a negative way. So, in order to protect them some protectionist actions can be taken.

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]]> By: Mehmet M Suma http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-1/#comment-19636 Mehmet M Suma Thu, 08 Dec 2011 19:40:19 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19636 Insanely consuming American nation would never be glad to hear that the prices will increase due to the tariff imposed by Obama. Insanely consuming American nation would never be glad to hear that the prices will increase due to the tariff imposed by Obama.

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]]> By: Mehmet M Suma http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19635 Mehmet M Suma Thu, 08 Dec 2011 19:37:30 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19635 1.The manufacturing sectors of China's trade partners suffer severely as they cannot compete with the low cost production of China due to the undervalued RMB. This leads to an increase in unemployment rate and recession. 2. China aims to aggrandize its export sector by keeping RMB low because low Chinese exports will be much more attractive than the US or European products. This will lead to economic growth for China. 3. If the WTO does not act against China, then the US will have to use protectionist measures on his own to increase economic activity and reduce the unemployment rate. Firstly, the US may use quotas or tariffs to reduce the Chinese exports in the country. Besides, the government may subsidize the manufacturing sector to become more competitive against Chinese exports. Lastly, The government may depreciate the US dollar to make US exports more attractive. This option seems unlikely as China has an incessant demand for US treasury securities and other financial and real assets to keep dollar high. 1.The manufacturing sectors of China's trade partners suffer severely as they cannot compete with the low cost production of China due to the undervalued RMB. This leads to an increase in unemployment rate and recession.
2. China aims to aggrandize its export sector by keeping RMB low because low Chinese exports will be much more attractive than the US or European products. This will lead to economic growth for China.
3. If the WTO does not act against China, then the US will have to use protectionist measures on his own to increase economic activity and reduce the unemployment rate. Firstly, the US may use quotas or tariffs to reduce the Chinese exports in the country. Besides, the government may subsidize the manufacturing sector to become more competitive against Chinese exports. Lastly, The government may depreciate the US dollar to make US exports more attractive. This option seems unlikely as China has an incessant demand for US treasury securities and other financial and real assets to keep dollar high.

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]]> By: Haleigh Eppler http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19567 Haleigh Eppler Wed, 07 Dec 2011 04:54:54 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19567 How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners? China's currency manipulation is protectionism because it gives the Chinese market an unfair advantage over its trading partners' economies. The advantage costs the partners GDP as firms export labor to the cheaper market in China. The export of labor results in an increase in unemployment for the effected nation causing further problems in the domestic economy. What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations? China has a larger advantage because the goods can be produced cheaper. If the exchange rate were 1:1 then it may cost 5 dollars to manufacture a good; however, if the exchange rate is lower, it may only cost 3 dollars. The same good produced in Australia would cost 5 dollars. What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? Obama could implement counter-protectionism such as tariffs or quotas to limit the trade. The limit on the trade would compensate for the trade lost to the protective advantage china gathered through currency manipulation. How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America? I would advice minimal protectionist policies because of the possibility of retaliation. Retaliation may cause devaluation of the dollar or further devaluing of the RMP causing the protectionism to be useless, Policies on behalf of the US will increase the price of goods for consumers limiting domestic spending and further lowering the GDP. Strong policies would not aid either country. How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners?
China's currency manipulation is protectionism because it gives the Chinese market an unfair advantage over its trading partners' economies. The advantage costs the partners GDP as firms export labor to the cheaper market in China. The export of labor results in an increase in unemployment for the effected nation causing further problems in the domestic economy.

What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations?
China has a larger advantage because the goods can be produced cheaper. If the exchange rate were 1:1 then it may cost 5 dollars to manufacture a good; however, if the exchange rate is lower, it may only cost 3 dollars. The same good produced in Australia would cost 5 dollars.

What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations?
Obama could implement counter-protectionism such as tariffs or quotas to limit the trade. The limit on the trade would compensate for the trade lost to the protective advantage china gathered through currency manipulation.

How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America?
I would advice minimal protectionist policies because of the possibility of retaliation. Retaliation may cause devaluation of the dollar or further devaluing of the RMP causing the protectionism to be useless, Policies on behalf of the US will increase the price of goods for consumers limiting domestic spending and further lowering the GDP. Strong policies would not aid either country.

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]]> By: selin tatlican http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19551 selin tatlican Tue, 06 Dec 2011 21:29:27 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19551 Hi Merve, I really liked your answers. They are informative and so clear. Hi Merve, I really liked your answers. They are informative and so clear.

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]]> By: AydaAyd http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19549 AydaAyd Tue, 06 Dec 2011 21:13:26 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19549 1.) How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners? The low currency value will definitely result with a fall in the prices of Chinese exports. These low prices of the Chinese exports are in fact not something good especially for the EU and USA economies, since they cannot compete with those low prices of Chinese exports. So by this way, China threatens the industrial economies of its largest trading partners like European countries and United States. 2.) What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations? By maintaining the low value of RMB relative to the currencies of other nations, China would be in a position that its exports would be chosen more, since the demand towards to those products has been increased. Thus, Chinese high export rates will be protected too. 3.) What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America? In this case, what America and so the Obama administration should do is to apply protectionism whether quota or tariffs to protect its own domestic markets. Since US consumers are chosing low-priced products which are the exports of China, domestic markets is being affected badly as they are not preferred because of their values. So that to protect them, some protectionism principles should be used. 1.) How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners?
The low currency value will definitely result with a fall in the prices of Chinese exports. These low prices of the Chinese exports are in fact not something good especially for the EU and USA economies, since they cannot compete with those low prices of Chinese exports. So by this way, China threatens the industrial economies of its largest trading partners like European countries and United States.
2.) What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations?
By maintaining the low value of RMB relative to the currencies of other nations, China would be in a position that its exports would be chosen more, since the demand towards to those products has been increased. Thus, Chinese high export rates will be protected too.
3.) What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America?
In this case, what America and so the Obama administration should do is to apply protectionism whether quota or tariffs to protect its own domestic markets. Since US consumers are chosing low-priced products which are the exports of China, domestic markets is being affected badly as they are not preferred because of their values. So that to protect them, some protectionism principles should be used.

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]]> By: Bryan DiLaura http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-1/#comment-19541 Bryan DiLaura Tue, 06 Dec 2011 16:47:32 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19541 @Elvira I agree with your answer to the last post to a certain degree. I don't think that it would be a good idea at all for the US to use protectionism against China, as it would lead to greater costs, etc in the US. I think a diplomatic measure, as you said, is the best option. @Elvira I agree with your answer to the last post to a certain degree. I don't think that it would be a good idea at all for the US to use protectionism against China, as it would lead to greater costs, etc in the US. I think a diplomatic measure, as you said, is the best option.

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]]> By: Bryan DiLaura http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19539 Bryan DiLaura Tue, 06 Dec 2011 16:41:43 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19539 1. How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners? By undervaluing their own currency, China is using almost a form of protectionism. They are artificially making their own goods look more attractive compared to their trading partner's industries. This means that they are able to export more, driving their domestic economy forward. 2. What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations? China's purpose for keeping the value of the RMB low is to keep costs of production in China low, allowing their manufacturing industries to flourish. 3. What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America? I would advise against the Obama administration using protectionist measures if the WTO refuses. This would not only create more tension with China as a trading partner in the long term, but it would also end up hurting the US consumers with higher prices(from the loss of welfare, etc.). 1. How does China continuing to undervalue its currency threaten the industrial economies of its largest trading partners?
By undervaluing their own currency, China is using almost a form of protectionism. They are artificially making their own goods look more attractive compared to their trading partner's industries. This means that they are able to export more, driving their domestic economy forward.

2. What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations?
China's purpose for keeping the value of the RMB low is to keep costs of production in China low, allowing their manufacturing industries to flourish.

3. What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America?
I would advise against the Obama administration using protectionist measures if the WTO refuses. This would not only create more tension with China as a trading partner in the long term, but it would also end up hurting the US consumers with higher prices(from the loss of welfare, etc.).

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]]> By: Quinn Richardson http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19537 Quinn Richardson Tue, 06 Dec 2011 16:25:30 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19537 @Do?an Can I agree that the US should attempt to find a solution to the problem of currency manipulation as this is not sustainable in the long run. However I think the US shoul be careful when it decides to make enimies of trading partners, especially ones as strong as China. The US should only resort to protectionism if efforts to convince the Chinese of their malpractices has failed. If the US wishes to make a strong point, it should unite with other countries suffering from Chinese currency manipulation. @Do?an Can

I agree that the US should attempt to find a solution to the problem of currency manipulation as this is not sustainable in the long run. However I think the US shoul be careful when it decides to make enimies of trading partners, especially ones as strong as China. The US should only resort to protectionism if efforts to convince the Chinese of their malpractices has failed. If the US wishes to make a strong point, it should unite with other countries suffering from Chinese currency manipulation.

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]]> By: Quinn Richardson http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19535 Quinn Richardson Tue, 06 Dec 2011 16:17:34 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19535 3.Because the US demands so heavily on Chinese exports, the Obama administration should 'tread lightly' so-to-speak when it comes to taking action against them. In order to defer demand for its government bonds, the US could dramatically cut interest rates therefore reducing the demand for the US dollar. This would be a non-protectionist response to the problem. If the US wishes to annoy the Chinese for their actions in currency manipulation, they could impose trade barriers such as import quotas or tariffs on goods that come primarily from China. Personally I think it is not in China's favour to continue to harm US manufacturers as most of the demand for Chinese products come from the US. If Americans don't have jobs how will they be able to purchase goods from China. This also harms the citizens of China as their wages don't have the appropriate purchasing power overseas as the currency market would determine. 3.Because the US demands so heavily on Chinese exports, the Obama administration should 'tread lightly' so-to-speak when it comes to taking action against them. In order to defer demand for its government bonds, the US could dramatically cut interest rates therefore reducing the demand for the US dollar. This would be a non-protectionist response to the problem. If the US wishes to annoy the Chinese for their actions in currency manipulation, they could impose trade barriers such as import quotas or tariffs on goods that come primarily from China. Personally I think it is not in China's favour to continue to harm US manufacturers as most of the demand for Chinese products come from the US. If Americans don't have jobs how will they be able to purchase goods from China. This also harms the citizens of China as their wages don't have the appropriate purchasing power overseas as the currency market would determine.

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]]> By: Quinn Richardson http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19534 Quinn Richardson Tue, 06 Dec 2011 16:17:09 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19534 1.By undervaluing its currency, Chinese goods remain relatively cheaper when compared to the goods made domestically by its competitors. This essentially raises the demand for Chinese goods from overseas. Competitors suffer because their products remain expensive as the currencies in which their products are sold continue to appreciate. 2.When China keeps the value of the RMB low relative to other currencies in the world, this essentially under-prices Chinese goods making them extremely attractive to importers in foreign countries. This stifles away demand from domestic producers in these other countries. 1.By undervaluing its currency, Chinese goods remain relatively cheaper when compared to the goods made domestically by its competitors. This essentially raises the demand for Chinese goods from overseas. Competitors suffer because their products remain expensive as the currencies in which their products are sold continue to appreciate.

2.When China keeps the value of the RMB low relative to other currencies in the world, this essentially under-prices Chinese goods making them extremely attractive to importers in foreign countries. This stifles away demand from domestic producers in these other countries.

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]]> By: Do?an Can http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-1/#comment-19530 Do?an Can Tue, 06 Dec 2011 15:51:34 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19530 Thanks for the answer for the 3rd question. I didn't mntion about unemployment, price level and taxation. You gave me some new ideas... Thanks for the answer for the 3rd question. I didn't mntion about unemployment, price level and taxation. You gave me some new ideas…

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]]> By: Do?an Can http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19529 Do?an Can Tue, 06 Dec 2011 15:50:24 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19529 -How does China, continuing to undervalue its currency, threaten the industrial economies of its largest trading partners? Because of the value of currency of China its exports increases. As a result of this people will demand for the products of China more than the other countries because of the cost of production. This situation is not good for US because its exports will decrease. -What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations? The main purpose is to increase the exports. As we learned in our lessons we can say that if the exports increase this means they have to produce more and if they have to produce more this means more people have to work. So employment rate is going to increase. Also this situation is good for the domestic producers because if the exports are higher than the imports they will not be effected by this situation. -What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America? In this situation of course US have to apply protectionism to protect its domestic producers. As a result of this situation US have to apply quotas, tariffs and subsidies. By applying these, domestic producers are been protected and they are going to produce more. -How does China, continuing to undervalue its currency, threaten the industrial economies of its largest trading partners?

Because of the value of currency of China its exports increases. As a result of this people will demand for the products of China more than the other countries because of the cost of production. This situation is not good for US because its exports will decrease.

-What is China’s purpose for maintaining the low value of the RMB relative to the currencies of other nations?

The main purpose is to increase the exports. As we learned in our lessons we can say that if the exports increase this means they have to produce more and if they have to produce more this means more people have to work. So employment rate is going to increase. Also this situation is good for the domestic producers because if the exports are higher than the imports they will not be effected by this situation.

-What would be a unilateral protectionist measure an Obama administration may advocate if the WTO refuses to take action against China’s currency manipulations? How would you advise president-elect Obama on the issue of whether to take protectionist action against China in the context of the current economic crisis in America?

In this situation of course US have to apply protectionism to protect its domestic producers. As a result of this situation US have to apply quotas, tariffs and subsidies. By applying these, domestic producers are been protected and they are going to produce more.

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]]> By: Talia Greene http://welkerswikinomics.com/blog/2009/10/26/exchange-rates-currency-manipulations-and-the-balance-of-trade/comment-page-2/#comment-19527 Talia Greene Tue, 06 Dec 2011 15:10:09 +0000 http://welkerswikinomics.com/blog/2008/11/14/exchange-rates-currency-manipulations-and-the-balance-of-trade/#comment-19527 @tsekine: I agree that it is important to protect domestic industries at a time like this, but I don't think that this should be the focus of the President's policy. I think they should be more concerned with promoting growth in developing industries that will be more important in the coming years than protecting industries that have already almost been out-competed. @tsekine:
I agree that it is important to protect domestic industries at a time like this, but I don’t think that this should be the focus of the President’s policy. I think they should be more concerned with promoting growth in developing industries that will be more important in the coming years than protecting industries that have already almost been out-competed.

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