U.S.-China Trade: A Different View

Even as China begins to impose duties on some of its apparel exports and reports circulate that People's Republic may be looking for ways to loosen ties between the yuan, its currency, and the U.S. dollar, Merrill Lynch & Co. labels as "misdirected" continuing criticism of China's fixed-exchange-rate policy and growing concern -- to the point of talk about retaliation--over China's increasing economic and financial prowess. Contends the New York-based financial firm, "All the talk of trade retaliation would be self-defeating and only serve to hurt the U.S. consumer, who would only see real wage growth recede even further without the lower every-day prices nurtured by China's low-cost export prowess."

Yes, U.S. imports from China and outsourcing production to China have had a negative impact on "some domestic manufacturers," admit Merrill economists Kathleen Bostjancic and Tom Porcelli. "But, the contraction of our manufacturing base began long before China became the country that held the largest [trade] deficit with the U.S.," they contend.

What's more, U.S. companies themselves account for much of the increase on the U.S. import side of trade with China. "In essence, much of the increase in the trade deficit with China in recent years is little more than U.S.-owned companies shipping back their production to the home market," assert Merrill's economists.

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