July 2006

Congress and the Bush administration continue to pressure China to allow its currency to appreciate against the U.S. dollar under threat of trade sanctions. Critics contend “currency manipulation” gives Chinese producers an unfair advantage against their American competitors by making Chinese imports artificially cheap and U.S. exports to China more expensive, thus depressing U.S. manufacturing output and destroying U.S. jobs. The rationale behind China’s currency policies and the impact of those policies on the U.S. economy are in reality quite different from those claims. Imposing punitive, unilateral sanctions against imports from China because of its foreign currency regime would be a colossal policy blunder. Trade sanctions would, of course, hurt producers and workers in China, but they would also punish millions of American consumers through higher prices, disrupt supply chains throughout East Asia, invite retaliation, and jeopardize sales and profits for thousands of U.S. companies now doing business with the people of China.