The Obama administration has blamed the reduced reminbi for the trade deficit and the trade deficit for the job losses. Congress too wants to restrict imports from China to compel devaluation of reminbi. Daniel Ikensen says the evidence indicates the otherwise.
He says: "between July 2006 and July 2008 the reminbi rose 21% against the dollar to $.1464 from $.1208, where it had been pegged since 1997. But the trade deficit, according to the trade statistics compiled by the U.S. Census Bureau, nevertheless, increased to $268 billion from $202 billion over that period." He also mentions that "U.S. import from China between 2005 and 2008 actually increased by a whopping $94.3 billion by 39%."
Ikensen cited studies which suggest that one-half to two-thirds of the value of "Chinese" imports is added in other countries, including the U.S.
According to Ikensen, the relationship between currency and the trade deficit is weaker than policy makers presume Weaker still is the relationship between the trade deficit and the loss of jobs.
Mr. Daniel Ikensen is associate director of the Cito Institute's Center for Trade Politdcy Studies. (Source: Wall Street Journal, Apr 2, 2010).