The "Logic" of Bashing China's Currency Regime

In the previous post, I explained why a US-China trade war is a potentially welcome development. This, of course, puts me in your standard-issue economist's doghouse [woof, woof]. In my defense, I was at pains to point out that this course of action would, ironically, likely lead to a path more consonant with the desires of those who first argued for free trade. I further added that it was the most immediate alternative for removing price distortions bedeviling the world economy.



Like Cain, then, I have thus been cast out of not-quite-econo-paradise into the Land of Nod(ders). Never let it be said that baying for a trade war was a wholesome enterprise. Worse, the sorts of people who call for China-bashing seem to be singularly lacking in neighborly spirit--they don't call it beggar-thy-neighbor for nothing. Nor are their arguments particularly convincing or even coherent. Let us take one example. The folks at the China Currency Coalition (CCC) have provided the following chart whose assumed intent is to demonstrating how remiss China has been in revaluing its currency:



china currency


According to their thinking, China ought to have appreciated its currency by 0.3% daily since 21 July 2005, the day the formal peg to the dollar was removed in favor of a "managed float." Nevermind that the official statement didn't say that the currency would appreciate 0.3% daily but that it would move in a ±0.3% trading range against the US dollar. This chart reveals a lot of the ineptitude driving your boilerplate China-bashing calls. Among other things -

  • why *just* a 40% revaluation? Nearly everyone is aware of the yuan being about that much undervalued in PPP terms. Still, wouldn't a 0.3% daily revaluation mean that the yuan would have reached parity with the dollar sometime ago? Indeed, why stop at parity?
  • for all their China-bashing zeal, the CCC folks have been asleep at the wheel. In May of 2007, the People's Bank of China widened its trading band to ±0.5%. Are these hawks getting soft on the evildoers?

I hate to say it, but this is the sort of dreck I must now put up with. Why, who are the geniuses behind this artwork?

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