An Old Chinese Proverb

The Chinese and the US will enter into a new phase of their relations in short period. The Chinese currency, the renmibi, also referred to as the yuan, is considered to be a cheap currency in relation to other currencies around the world especially against the dollar. The US has been trying to make the Chinese government allow their currency to float against other currencies in the foreign exchange market for a long time without avail. Some economists as well as US officials have complained that the Chinese government is keeping its currency artificially cheap in order to maintain its high level of exports. Once its currency gains value its products would become more expensive for other countries to purchase. The Chinese economy is growing at a fast pace. So if their currency was allowed to fluctuate against other currencies it would be stronger than it is now because it would be a reflection of that country’s economic situation. By keeping its currency low, China is growing due in a very large part to its big export market. For example, the US has trade deficit with china of over 3 to 1. For every dollar that the US exports to China, The US imports over $3 from China. So this huge export market is not only creating wealth but it is also creating jobs within China and allocating resources to China which could potentially go somewhere else if their currency was allowed to fluctuate and gain value in the foreign exchange market. What does this mean to us? Because of this we are provided with cheap products from China which to us is very beneficial since times are relatively difficult. But our decision is almost made for us because we really do not have much of an option at the moment. Even if we wanted to support our local economy, domestic products would probably be too expensive to be purchased on a regular basis versus buying from China. Maybe if their currency is allowed to fluctuate we will be able to choose other products as their prices become more competitive. We may be able to buy, say, peeled garlic (yes, that’s right, peeled garlic) from a local grower instead of having it shipped over from China, which at the moment is the economically sound choice.