Economist Warns against Blaming China Yuan Revaluation 'Won't Allow the Americans to Export More Goods'

American politicians are calling for China to revalue its currency to help out troubled US exporters. But in an interview with SPIEGEL, a leading German economist has warned that America first needs to make products that people want to buy.

The US wants China to allow its currency the yuan (also known as the renminbi) to appreciate.
AFP

The US wants China to allow its currency the yuan (also known as the renminbi) to appreciate.


SPIEGEL: China's currency reserves have grown to a breathtaking $2.65 trillion (€1.9 trillion) and the imbalance in world trade is growing larger all the time. Can a revaluation of the yuan, as the US is calling for, halt this trend?

Rolf Langhammer: It would be welcome -- and also in China's own interest -- if the yuan exchange rate was more flexible than it has been up to now. China's recent moves in that direction (i.e. the small revaluation since June) are far from sufficient. I would caution against overblown expectations, though. It would hardly be possible to eliminate the global imbalance in that way.

SPIEGEL: Why not?

Langhammer: A weak dollar won't automatically allow the Americans to export more goods. We shouldn't be under any illusions about that. In many cases, companies that are based in the US can't survive on the global market because they don't have innovative products or the qualified workforce required to develop them.

SPIEGEL: Are interventions in exchange rates even capable of eliminating global imbalances?

Langhammer: When China allowed the yuan to gradually appreciate by some 20 percent between 2005 and 2008, there were no signs that this helped US businesses on the global market. The crucial thing is that a country must be well positioned with the range of goods that it wants to export. The US is still lagging well behind in that respect.

SPIEGEL: As opposed to German industry?

Langhammer: Definitely. Germany produces high quality goods that, to a certain extent, are independent of international price competition. To put it bluntly, people outside the European Union who buy a luxury German car or a machine tool don't make that decision based on the exchange rate.

Interview conducted by Alexander Jung.

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PaulAllen 10/19/2010
1. That's another great point
I have never seen as many Volkswagen and Mercedes in one place like I have when I was in China. I also haven't seen an American politician who was qualified for the position they are in, with very few exceptions. They are there for personal and selfish reasons.
WriteRightWright 10/20/2010
2. Only Half the Picture
Langhammer might have a point on American consumer goods not exporting well, but the USA does export a great many industrial and capital items: construction and mining equipment, oil exploration and geophysical gear, railroad engines, computer networking hardware etc. Think Caterpiller tractor, CAT diesel engines, Cisco Systems, Boeing, et al. Letting the yuan float and gain value in an open market will help domestic manufacturers in the USA, because the market has been inundated with a wave of artifically low-priced goods from China. The quality is wretched, but domestic manufacturers cannot easily compete when the Chinese goods sell for less than a quarter of the cost of domestically produced items. The Chinese have been manipulating the value of the yuan for too long and their currency needs to trade on the open market like everybody else, where the market (rather than he Communist Prty) decides its value. The currency manipulation game works a lot like the pricing strategy Rockefeller used to destroy competitors and establish the Standard Oil monopoly.
BTraven 10/22/2010
3.
Just four question were to answer and Mr. Langhammer has managed to contradict himself because I get the impression that a revaluation of the yuan only helps the US-economy so Germany will not affected at all. I think he is wrong. A strong yuan would make German cars cheaper, for example, therefore the likelihood that the demand will go up is very high since more Chinese are capable of affording, compared to cars from other countries, German cars. That also means that they can easily be substituted by other models. Only the branch which manufactures machine tools has an unique position in the world market. It would interesting to know what Mr. Krugman thinks of him. In his opinion one of the reason why Germany exports so much is that over the last ten years productivity has grown stronger than the wages.
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