PBoC Pushing the Yuan Lower; Will Infuriate US Manufacturing Lobby
Location: Tokyo
Date: 2013-08-05
While the yuan is trading around 6.13 to the dollar, the PBoC is
guiding the currency weaker. The so-called PBoC "midpoint" is now at
6.1817 - a level not seen since May. The currency is allowed to
trade 1% higher or lower than the level set each morning by the
central bank. The current trading level is 0.8% stronger than the
midpoint.
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PBoC
midpoint USD/CNY |
Given the nation's recent weakness in exports (see
post), the yuan appreciation policy is over for now. China's
officials have hinted for a while that exporters need help, and
setting the currency level is the primary tool used to help them.
As discussed (see
post), this is not going to resonate well in the US, especially
given that 2014 is a midterm election year. The US manufacturing
lobby is already raising the temperature on China's currency
practices (on top of other complaints). The piece below was written
last week by Scott N. Paul, President of the Alliance for American
Manufacturing (AAM).
Rockford Register Star (based in Illinois): - ... Since we
granted normalized trade relations to Beijing over a decade ago,
we’ve traded production capacity, and about 2.7 million
middle-class jobs (including more than 113,000 in Illinois) to
China in order to live high on the consumption hog.
Beijing fuels this trade gap through massive subsidies while
also forcing American companies to transfer intellectual
property, ignoring widespread counterfeiting and stealing
everything from Coca-Cola trade secrets to Pentagon
missile-defense plans.
But ultimately, no single subterfuge does as much sustained
damage to the American economy as Beijing’s policy of currency
manipulation.
China holds massive reserves of American dollars. By hoarding
cash, Beijing actively works to inflate the value of the dollar
while artificially lowering the value of its own currency, the
yuan. Doing so acts as a hidden tax on American goods entering
the Chinese market and a subsidy for Chinese goods entering our
home market.
By distorting the market with its rigged currency, China has
exponentially expanded its wealth. It’s past time our leaders
acted to stop it.
A bill currently making its way around the U.S. House of
Representatives, the ‘Currency Reform for Fair Trade Act,’
would allow businesses to file trade cases based on injury from
China’s currency manipulation. Passing it would produce
immediate results. Even the hint of action on currency
manipulation causes shudders in the Chinese politburo...
Like it or not, such language is going to resonate well among
large parts of the US electorate, especially given the painfully
slow economic (and in particular manufacturing) growth. This issue
will become center stage among many politicians as elections
approach and the yuan appreciation policy remains on hold.
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