Vail Valley Voices: The coin of the realm for Sino-U.S. relationship
Vail, CO, Colorado
The world’s most complicated strategic relationship is the one between the United States and Chiina. The affiliation is dominated by several diplomatic and economic issues.
The foreign affairs issues evolve around China’s relationships with Iran, the Korean Peninsula and Taiwan. The prime economic controversies are the status of Beijing’s currency (the renminbi), plus the difficulties American businesses face operating in China.
The top international affairs issue in the 2012 presidential election will be the U.S.-China relationship. Beijing’s currency appreciation-depreciation is a key source of contention between the countries. The Senate passed legislation relating to the issue in mid-October; the president didn’t approve the measure. The subject will surface periodically throughout 2012, especially as it relates to America’s unemployment woes.
The pace of the Chinese currency’s value increase-decrease will probably have several outcomes:
• Higher prices on Chinese products that Americans buy.
• Enhancement of the Chinese consumer’s buying power.
• Expansion of social unrest in China, which could directly challenge the Chinese Communist Party’s authority, depending on how rapidly the renminbi appreciates.
• Chinese officials will likely address the currency issue by allowing it to increase at a steady pace, preventing widespread disorder.
The renminbi’s appreciation is viewed in American policymaking circles by congressional and union leaders sharing one perspective, while the White House and business groups have a second viewpoint.
The first group contends that forcing Beijing to allow a rapid renminbi appreciation would create work within the United States. It would compel China-based American companies to return to our country due to increased operating expenses incurred by a higher valued currency.
The second party disagrees. They argue an appreciated renminbi would compel U.S. firms to explore less-expensive operational markets such as Vietnam or Singapore. A higher-valued currency would not adversely or favorably impact America’s unemployment situation consequently.
The White House and allied businesses believe the currency issue is a secondary concern in U.S.-Chinese affairs. Their main priority is creating an equal, viable operating environment in China for American companies.
There are various scenarios for how an appreciated renminbi may impact both countries. The most plausible is an increase in consumer prices for Americans, a higher buying power for Chinese, and an expansion of social unrest resulting from laid-off employees and groups indirectly impacted by an ascension in the currency’s value.
The renminbi’s appreciation wou;d result in higher prices Americans pay for various products such as computers, TVs, and other electronics. It’s almost impossible not to visit a Walmart, Office Depot or any other retailer without seeing the words “Made in China” on most merchandise.
An increase in the currency’s value would force Chinese businessmen to pass elevated operating costs onto consumers via higher prices. Guess who will feel the consequences?
The disadvantages outweigh the benefits of allowing the renminbi’s appreciation for the Chinese. The advantage is it would increase China’s wages and spending power. It would permit them to purchase more domestic products, which are priced according to American dollars.
The drawback is it might incite social unrest from laid-off workers, and entities indirectly affected by the currency’s ascension. Chinese employers may reduce their overhead resulting from a higher currency by laying off workers.
One measure Beijing might employ to decrease the strain of a appreciated renminbi is to ease expensive environment regulations imposed on businesses. It may allow Chinese companies to reallocate financial resources toward keeping employees, but at a cost to China’s water supplies.
An increase in water pollution would directly impact China’s fishing and farming communities. Both groups staged protests regarding those issues in recent years. A loosening of environmental regulations to offset the consequences of an appreciated currency might incite unrest from both groups.
A worry for Beijing is that these communities may consolidate their operations and directly challenge the Central Commitee of the Communist Party’s authority. The scenario nearly happened during the 1989 Tiananmen Square incident.
Chinese culture believes history repeats itself, Beijing is eager to avoid a similar situation. The renminbi’s appreciation may lead a similar event in the long term. A Tiananmen Square type scenario may stall the global economic recovery. It might also create unforeseen strategic problems on an international level.
The most likely scenario is first, the United States will avoid a policy penalizing China for its currency practices; and second, Beijing will continue following the same policy it has regarding the renminbi since the early 2000s. It will slowly increase the currency’s value when economic circumstances permit. the renminbi will remain pegged to the dollar during uncertain financial conditions.
China realizes the currency’s rapid appreciation might have long-term social and political consequences. Allowing it to gradually increase diminishes the likelihood of those events.
Beijing also understands that inaction would strain Chinese-American relations. China will mitigate the problem by pursuing a delicate, yet carefully calculated course allowing the renminbi to appreciate under the right circumstances.
Matthew Kennedy has a master’s degree in diplomatic studies from the University of Westminster in London. He’s lived in Europe, Asia and Russia. Send comments to email@example.com.