Daily VideoNovember 12, 2010
China and U.S. Debate Currency Values
This week, a meeting of the world’s 20 largest economies, called the G20, is taking place in South Korea. One of the major conflicts being addressed at the meeting involves the value of the world’s currencies, specifically China’s. Many countries accuse China of purposely holding down the value of its currency, which makes its exports to other countries cheaper but gives Chinese products and countries a supposedly global edge.
The U.S. would like the value of the dollar to go down against the Chinese currency, called the renminbi. If this were to happen, the U.S. would be able to sell more of its goods to other countries and import fewer goods, which would create more jobs in the U.S. and help address the country’s trade deficit. But, the problem is that China wants the exact same thing for its people.
According to MIT Professor Yasheng Huang, the Chinese export sector employs a large number of people in China, and cutting exports would have a negative effect on the Chinese unemployment rate. Currently, the U.S. is flooding Chinese banks with dollars used to purchase Chinese goods, money which China is, in turn, lending back to the U.S. As David Steck of the firm Nomura Securities puts it, “China is basically lending us the money to buy stuff from them.”
“It is very difficult to make the argument with the Chinese and say, you do something about your exchange rate, but, by the way, we can spend the way we want, right?” – Yasheng Huang, MIT professor
“So, if you make shoes in Brazil, it’s a lot more difficult to compete, even in the local market, against Chinese imports. And a lot of it is coming because the Chinese have tied their currency to the dollar.” – Liran Blum, Nomura Securities
Warm Up Questions
1. What is a currency?
2. What are imports and exports?
3. What kinds of things does the U.S. import from China? How many of the items currently in your possession do you think were made in China?
4. What is a deficit?
1. Why do both China and the U.S. want other countries to buy a lot of their exports? How does this help each country?
2. Do you think the imagined scenario in the video where a Chinese professor discusses the fall of the American empire could actually happen as a result of American overspending? Why or why not?
3. According to the video, how are the U.S. and China interconnected? Why might it be hard for the countries to negotiate a currency policy that works for both of them?
4. What kinds of things does the U.S. export? Do you know anyone who works to manufacture or manage any of those exports? What do you think would happen to that person’s job if the U.S. drastically cut its exports to other countries?
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