Much Ado About Nothing?

Aug. 24, 2005

Doubts persist China's currency change will make much difference.

For U.S. manufacturers who insist an artificially low exchange rate between China's currency and the U.S. dollar has put them at a distinct competitive disadvantage, this October will be an even more significant month than was this past July. October is when the next U.S. Treasury report on Chinese currency practices is due. July was the month China said it would untie its currency, the yuan, from the U.S. dollar and link it more loosely to a collection of currencies and allow for continuing limited changes in value. This revaluation of the yuan could make Chinese exports more expensive and its own imports more costly, although that is far from assured.

What is clear, however, is that manufacturers and such business groups as the Washington, D.C.-based National Association of Manufacturers (NAM), which has been pushing Chinese currency revaluation for nearly two years, will be closely watching the evolving situation. "By October, when the next Treasury Department report of currency manipulation is due, we hope to see that China's currency has moved significantly enough to begin correcting long-standing trade distortions," NAM President John Engler said on July 21, the day China announced its new currency policy. Engler estimated the yuan could be revalued by as much as a percentage point every three days. "While the initial 2.1% revaluation is inadequate, we view it as the beginning of what should be a significant revaluation," he added.

A bit more cautious is Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group. "The appreciation of the yuan is a significant first step in addressing China's global trade imbalance, but it is so small that it will have little impact on the trade deficit with the United States," he says. China's trade deficit with the U.S. for the first five months of 2005 was $72.5 billion. "China's currency needs to be revalued by 25% to 40% to reflect its true value and to have any impact at all on the large and growing trade deficit with the U.S.," figures Duesterberg.

The consequences of China's change in currency exchange rates will be more political than economic, predicts Peter Morici, a professor at the University of Maryland's Smith School of Business in College Park. "Repeatedly the Bush Administration has failed to acknowledge the dislocations and distortions imposed on the United States and other economies by China's currency regime and resisted Congressional critics who would prefer a more forceful policy," he asserts. "China's move will have the effect of dividing critics on [Capitol] Hill and giving [Treasury] Secretary [John] Snow some political cover."

All Congressional critics are not likely to be quieted. Indeed, October could see lawmakers revive a bill co-sponsored by Sen. Lindsey Graham, R-S.C., and Sen. Charles Schumer, D-N.Y. Their legislation would slap duties on imports from China unless Beijing acted to redress significantly the undervaluation of yuan. A July vote on the measure was deferred to October after its co-sponsors consulted with with U.S. Treasury Secretary John Snow and Alan Greenspan, chairman of the Federal Reserve.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.