The currency manipulation legislation under consideration is at least 300 percent more likely to destroy U.S. jobs than it is to create them.

On November 8, 2011, FutureofUSChinaTrade.com director Molly Castelazo spoke with Dan Ikenson, associate director of the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, about what he sees as a lack of recent evidence to support the premise of an inverse relationship between the value of the yuan and the size of the bilateral U.S.-China trade deficit.  Between July 2005 and July 2008, the value of the yuan in dollar terms increased by 21 percent. Yet during the same period the bilateral trade deficit also increased – by 33 percent. Since June 2010, the yuan has appreciated by another 7 percent against the dollar. At the same time, the bilateral trade deficit is on target for to be one-third larger in 2011 than it was in 2010.

Dan says that legislation to “punish” China for its currency manipulation is “300 percent more likely to destroy American jobs” than to create them.  The key, he says, is that the relationship between currency values and final goods trade flows has been complicated by the fact of intermediate goods trade. Globalization and the proliferation of transnational supply chains – which means far more intermediate goods trade than in the past – has dulled the impact of currency values on final goods trade.

But Dan says that China does engage in trade-distorting behaviors that violate World Trade Organization (WTO) rules.  He says that instead of focusing on the currency issue, which he calls a “shell game” the U.S. should focus its energy on bringing China to the WTO on cases where its policies violate tirade agreements and distort trade flows.  Of the nine China cases that the U.S. has brought to the WTO, most have been adjudicated in favor of the U.S., Dan says – evidence that approach works.

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