Title: Why China's Currency Tangos With The USD
Headings: Why China's Currency Tangos With The USD
Why China's Currency Tangos With The USD
An Economic Miracle
U.S. China Trade War
China’s Currency Policy
Opposing Viewpoints
Implications of Yuan Revaluation
Mitigating Factors and Glimmers of Hope
The Bottom Line

Content: Another criticism of China’s currency policy is that it hinders the emergence of a strong domestic consumer market in the nation because: a) the low yuan encourages over-investment in China’s export manufacturing sector at the expense of the domestic market, and
b) the undervalued currency makes imports into China more expensive and out of reach for the ordinary citizen. Implications of Yuan Revaluation
Overall, the effects of China’s currency policy are quite complex. On the one hand, the undervalued yuan is akin to an export subsidy that gives U.S. consumers access to cheap and abundant manufactured goods, thereby lowering their expenses and cost of living. As well, China recycles its huge dollar surpluses into purchases of U.S. Treasuries, which helps the U.S. government fund its budget deficits and keeps bond yields low. China was the world’s biggest holder of U.S. Treasuries as of November 2013, holding $1.317 trillion or about 23% of the total issued. On the other hand, the low yuan makes U.S. exports into China relatively expensive, which limits U.S. export growth and will therefore widen the trade deficit. As noted earlier, the undervalued yuan has also led to the permanent transfer of hundreds of thousands of manufacturing jobs out of the U.S.
A substantial and abrupt revaluation in the yuan, while unlikely, would render Chinese exports uncompetitive. Although the flood of cheap imports into the U.S. would slow down, improving its trade deficit with China, U.S. consumers would have to source many of their manufactured goods - such as computer and communications equipment, toys and games, apparel and footwear - from elsewhere. Yuan revaluation may do little to stem the exodus of U.S. manufacturing jobs, however, as these may merely move from China to other lower-cost jurisdictions.