Congressional Research Service. Bureau of Labor Statistics. Import Prices in Center for Strategic and International Studies. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance.
Develop and improve products. List of Partners vendors. By Kimberly Amadeo. Learn about our editorial policies. Reviewed by Thomas J. Article Reviewed May 14, Thomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities.
Learn about our Financial Review Board. Fact checked by Julian Binder. Article Fact Checked October 15, However, some U. Numerous bills have been introduced in Congress over the past several years that have sought to induce China and other countries to reform its currency policy or to address the perceived effects of that policy on the U.
For example, one bill introduced in the th Congress by Senator Schumer S. The House approved a currency bill H. Over the past few years, some legislative proposals have sought to apply U. This would likely increase U. A major source of contention is whether such measures would be consistent with U.
Some contend that the WTO allows countries under certain conditions to administer their own trade remedy laws, and thus they argue that making currency undervaluation a factor in determining countervailing or anti-dumping duties would be consistent with WTO rules. Critics of such proposals counter that WTO rules do not specifically include currency undervaluation as a factor that can be used to implement trade remedy actions, and thus, such proposals, if enacted, might be challenged by China and possibly other WTO members as a violation of WTO rules.
Another major objective of various recent currency bills is to eliminate current provisions of U. Treasury has not identified any country for manipulating its currency since Some bills have sought to create a process whereby Treasury would identify countries with currencies that were estimated to be fundamentally misaligned based on certain criteria , regardless of intent.
Such bills list a number of actions some of which would be punitive the U. Some supporters of currency legislation aimed at China hope that the introduction of such bills will induce China to appreciate its currency more rapidly.
Opponents of the bills contend that such legislation could antagonize China and induce it to slow the rate of RMB appreciation.
Another concern of opponents is that China might also retaliate against U. The bill is identical to the one he introduced in the th Congress H. Factors that would be used by the Commerce Department to determine if a country's currency is fundamentally undervalued for the purposes of U. The bill would direct the Commerce Department to estimate the "subsidy" relating to a fundamentally undervalued currency for the purpose of imposing countervailing duties, which would be defined as the difference between a currency's real effective exchange rate and its equilibrium real effective exchange rate.
If such data are not available from the IMF, Commerce would be directed to use generally accepted economic and econometric techniques and methodologies to measure the level of undervaluation. It is essentially the same bill S. The bill would provide for the identification of fundamentally misaligned currencies and require action to correct the misalignment for certain "priority" countries.
The bill would require the Treasury Department to issue a semiannual report to Congress on international monetary policy and currency exchange rates, which, in addition to several provisions under current law, 44 would include:. Treasury would be required to seek negotiations with countries designated for priority action.
Factors used to determine priority countries would include those that are 1 engaging in protracted large-scale intervention in currency markets, particularly if accompanied by monetary sterilization measures; 2 engaging in excessive and prolonged accumulation of foreign exchange reserves for balance of payment BOP purposes; 3 introducing or modifying restrictions or incentives for balance of payment purposes on capital inflows and outflows that are inconsistent with the goal of achieving full currency convertibility; and 4 pursuing any other policy or action that the Treasury Secretary views as warranting designation for priority action.
If a country that has a currency designated for priority action fails to eliminate the fundamental misalignment within 90 days, the following would occur:.
If a country that has a currency designated for priority action fails to take steps to eliminate the fundamental misalignment within days after its designation by Treasury, the following would occur:. The bill also seeks to clarify that, in the case of a subsidy relating to a fundamentally undervalued currency, the fact that the subsidy i. The bill includes waiver provisions for actions taken toward priority countries and a process for Congress to disapprove the waivers.
For the purposes of measuring a benefit conferred by a misaligned currency in a regular countervailing duty case, Commerce would be directed to compare the simple average of the real exchange rates derived from the application of the IMF's equilibrium real exchange rate approach and the macroeconomic balance approach to the official daily exchange rate, relying on IMF or World Bank data, if available, or other international organizations or national governments if such data are not available.
For a countervailing duty case involving a fundamentally misaligned currency for priority action, S. For the purposes of antidumping duty cases involving a fundamentally misaligned currency for priority action, S.
Fundamental misalignment is defined as a significant and sustained undervaluation of the prevailing real effective exchange rate, adjusted for cyclical and transitory factors, from its medium-term equilibrium level.
The term "fundamental misalignment" and measurements of misalignment in the bill appear to have been largely drawn from the IMF's Decision on Bilateral Surveillance over Members' Policies see text box below. The IMF's Decision on Bilateral Surveillance over Members' Policies set new guidelines on exchange rate policies and identified certain developments that could affect global external stability, including exchange rate policies which in turn could trigger a thorough review by the IMF and possible consultations with an IMF member.
Developments that could trigger a review include 1 protracted large-scale intervention in exchange markets; 2 official or quasi-official borrowing that is unsustainable or brings unduly high liquidity risks or excessive and prolonged accumulation of foreign assets for balance of payment purposes; 3 monetary and other financial policies that provide abnormal encouragement or discouragement to capital flows; 4 significant policies that restrict or provide incentives for capital flows or current transactions or payments; 5 large and prolonged current account deficits or surpluses; 6 large external sector vulnerabilities; and 7 fundamental exchange rate misalignment.
A fundamental exchange rate misalignment may trigger IMF review when 1 there is a misalignment between the prevailing real effective exchange rate and the level that would bring the underlying current account in line with the equilibrium current account; 2 the misalignment is significant; 3 the significant misalignment is expected to persist under established exchange rate policies; and 4 the significant and persistent misalignment is established beyond any reasonable doubt.
The equilibrium real effective exchange rate is defined as one that is consistent with an underlying current account adjusted for temporary factors that is estimated to be in line with economic fundamentals, such as productivity differentials, the terms of trade, permanent shifts in factor endowments, demographics, and world interest rates , over the medium term.
Administration officials have welcomed greater congressional involvement on the China currency issue as long as legislative proposals do not violate U. WTO obligations and do not complicate ongoing bilateral and multilateral negotiations with China on the issue. The Administration did not publicly indicate whether it supported or opposed the House-passed version of H.
During considering of S. We share the goal of the legislation in taking action to ensure that our workers and companies have a more level playing field with China, including addressing the under-valuation of their currency, an issue that I've spoken about and certainly Secretary Geithner and others have spoken about.
Aspects of the legislation do, as I've said, raise concerns about consistency with our international obligations, which is why we're in the process of discussing with Congress those issues. And if this legislation were to advance, we would expect those concerns to be addressed. And this adjustment, of course, is critical not just to China's ongoing efforts to contain inflationary pressures and to manage the risks that capital inflows bring to credit and asset markets, but also to encourage this broad shift to a growth strategy led by domestic demand.
It is intervening less in exchange markets. China is also moving to liberalize controls on the international use of its currency and on capital movements into and out of the country. It addition, the Obama Administration has sought to use multilateral channels, such as the Group of 20 G of leading economies and the IMF, as a means to boost international cooperation on external balances and exchange rate policies and to bring more pressure on China to appreciate its currency.
The proposal contained three main points: China and a number of other G members, though supporting efforts to rebalance the global economy, opposed the idea of using numerical targets.
In February , the G-7 finance ministers and central bank governors issued a statement reaffirming their "longstanding commitment to market-determined exchange rates" and that fiscal and monetary policies would remain oriented towards meeting domestic objectives, and that members would not target exchange rates.
They noted that members agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. This section examines a number of issues pertaining to the effects of China's undervalued currency on the U. The economic effects on the Chinese economy of an undervalued currency are examined later in the report. A major question raised by U. Several economic studies have been issued over the years that have attempted to estimate the degree of the RMB's undervaluation against the dollar with varying results.
A Department of the Treasury report describes a number of challenges that arise from attempting to use economic models to predict market exchange rates. It notes that there is no single model that accurately explains exchange rate movements, that such models rarely, if ever, incorporate financial market flows, and that their conclusions can vary considerably, based on the variables used.
However, the report stated that examining such models can produce useful information in understanding exchange rate movements if they focus only on serious misalignments; use real effective, not bilateral, exchange rates; utilize several different models, recognizing that no one model will provide precise answers; focus only on protracted misalignments where currency adjustments are not taking place; supplement judgments about misalignment with analysis of empirical data, indicators, policies, and institutional factors; and verify whether there are any market-based reasons for a currency's misalignment.
The IMF's Consultative Group on Exchange Rates uses three different methodologies for its surveillance and assessment of the exchange rate regimes of its members, including an equilibrium real exchange rate ERER approach, an external sustainability ES approach, and the macroeconomic balance MB approach. While adopting different empirical methodologies goes some way towards strengthening the robustness of exchange rate assessments, it should be recognized that such assessments are unavoidably subject to large margins of uncertainty.
These relate to a number of factors, such as the potential instability of the underlying macroeconomic links, differences in these links across countries, significant measurement problems for some variables, as well as the imperfect "fit" of the models. Some of these problems may be more severe for emerging market economies, where structural change is more likely to play an important role and where limitations in terms of data availability and length of sample are more acute.
In July , the IMF declared that: "The renminbi is assessed to be moderately undervalued, reflecting a reassessment of the underlying current account, slower international reserves and in accumulation, and past real effective exchange rate appreciation. Most studies of the RMB's projected market value against the dollar have involved one-time estimates made for a given period of time and thus may not reflect fundamental economic changes that may have subsequently occurred, which in turn would affect estimates of the RMB's equilibrium exchange rate with the dollar in other years.
For example, a one-time study on China's exchange rate in will not reflect any change appreciation or depreciation in the currency that has occurred since the study was done.
One exception to these limitations is partially addressed by work done by William R. Cline with the Peterson Institute for International economics, who has made estimates of the equilibrium exchange rates for a number of countries, including China, from to on a semiannual basis. Cline uses the fundamental equilibrium exchange rate FEER method to estimate exchange rates. One of the assumptions that he uses is that current account balances around the world are temporarily out of line with their "fundamental" value.
Once an estimate has been made of what the fundamental current account balance should be, one can calculate how much the exchange rate must change in value to achieve that current account adjustment.
To calculate the level of misevaluation for one country under this method, estimates of how far exchange rates for every country are out of equilibrium, including countries with floating exchange rates, must be made. One of the main sources of contention in FEER estimates is choosing an "equilibrium" current account balance for each country. Estimates of the RMB's undervaluation are typically defined as the appreciation that would be required for China to attain "equilibrium" in its current account balance.
But there is no consensus based on theory or evidence to determine what equilibrium would be, so a judgmental approach is used. As indicated in Figure 8 , Cline's estimates of the amount of appreciation the RMB would need to obtain equilibrium i. His May study estimates the equilibrium level of the currencies of 33 countries plus the euro area.
The top 10 countries with the most undervalued currencies as of April are listed in Table 1 in ranking order. Table 1. Source: Cline, William R. There is no universally accepted methodology for precisely determining a country's real market exchange rate. The economic conditions and assumptions that are used to determine "equilibrium" exchange rates change continuously. As a result, many analysts question their usefulness to U.
Figure 8. Source: William R. Many policymakers might expect that if China significantly appreciated its currency, U. For example, C. On the one hand, during this period U. Part of the problem in attempting to evaluate the effects of the RMB's appreciation is that it can take time perhaps a few years before changes in exchange rates are reflected in changes to prices of tradable goods and services, and, hence, result in changes to imports, exports, and trade balances.
An appreciated RMB could actually worsen the U. It would take time for U. If an appreciated currency lowered prices for U. Over time, one would expect the effects of currency appreciation to affect the flow of bilateral trade and, possibly, produce a decrease in the bilateral trade imbalance although the size of the overall U.
Another factor to consider in evaluating the effects an RMB appreciation may have had on trade flows is to examine how price changes would be passed on or distributed. If the RMB appreciates against the dollar, not all of the price increase resulting from the appreciation may be passed on to the U. Some of it may be absorbed by Chinese laborers, producers, or exporters, and some by U. According to the U.
Department of Labor, from to year-end , the price index for U. Figure 9. Index of U. Note: is the first available year for data on import prices of Chinese commodities. The issue of exchange rate effects is further complicated by China's role as a major assembly center for multinational corporations. Many analysts contend that the sharp increase in U. That is, various products that used to be assembled in such places as Japan, Taiwan, Hong Kong, etc.
According to Chinese data, foreign-invested firms in China account for over half of China's trade flows both exports and imports. Such firms import raw materials, intermediate goods such as components , and production machinery to China.
One study of Apple Inc. Others contend that, even if foreign-invested firms in China faced significantly higher costs because of an appreciated RMB, they would move production to another low-cost country, and thus, while the U.
S trade deficit with China decreased, the U. By accounting identity, the overall trade deficit is equal to the shortfall between domestic saving and investment, while an overall trade surplus is equal to a surplus of domestic saving relative to investment.
For many years, China has been a high-saving country that has run overall trade surpluses and the United States has been a low-saving country that has run overall trade deficits for more discussion on this issue, see Appendix. China's use of an exchange rate peg and capital controls may have contributed to its high saving rate, but it is unlikely that movement to a floating exchange rate would eliminate the large disparity between U.
Thus, it is likely that the United States would continue to be a net debtor and China would continue to be a net creditor if the RMB rose in value.
If so, economic theory predicts the countries' bilateral trade imbalance would either persist or possibly be replaced by new bilateral imbalances with third countries. As noted earlier, a number of U. However, other economists contend that, while an undervalued RMB may have distorted trade flows to some extent, it is not the most significant challenge to U. For example,. Economists generally oppose the use of policies such as subsidies and trade protection that interrupt market forces and distort the most efficient distribution of resources.
A fixed or managed float exchange rate whose level is not adjusted when economic conditions change might be viewed as such a distortion. From a policy perspective, it could be argued that China's current undervalued currency produces economic "winners and losers" in both countries, and therefore, an adjustment to that policy would produce a new set of economic "winners and losers.
What would the effects be for the U. When exchange rate policy causes the RMB to be less expensive than it would be if it were determined by supply and demand, it causes Chinese exports to be relatively inexpensive and U. As a result, U. A market-based exchange rate could boost U. According to economic theory, a society's economic well-being is usually measured not by how much it can produce, but how much it can consume.
An undervalued RMB that lowers the price of imports from China allows the United States to increase its consumption through an improvement in the terms-of-trade. Since changes in aggregate spending are only temporary, from a long-term perspective, the lasting effect of an undervalued RMB is to increase the purchasing power of U. Imports from China are not limited to consumption goods. An undervalued RMB lowers the price of these U. An appreciation of China's currency could raise prices for U.
In addition, firms that use imported Chinese parts could face higher costs, making them relatively less competitive. An undervalued RMB also has an effect on U. When the United States runs a current account deficit with China, an equivalent amount of capital flows from China to the United States, as can be seen in the U.
This occurs because the Chinese central bank or private Chinese citizens are investing in U. Capital investment increases because the greater demand for U.
If China were a large importer of American goods, neither nation would complain too much about this arrangement. Imagine instead that China were trying to export soybeans to the U. When the exchange rate changes, U. Americans, naturally, would instead buy from other nations at lower relative prices, taking away large swaths of business from Chinese exporters.
This is where currency manipulation comes into play. Simultaneously, in an effort to protect the development of nascent domestic industries, manipulation of the RMB created significant non-tariff barriers to foreign nations seeking to get involved in this large emerging market, by keeping imports artificially costlier than Chinese products.
Such actions went unchecked for years, leading China to become the global trade and manufacturing powerhouse it is today. However, under President Trump, the U. The RMB has fallen 8 percent against the USD in the past year alone, suggesting manipulative behavior in response to ongoing trade conflicts.
China dropped the price of their currency to an almost a historic low. This is a major violation which will greatly weaken China over time! The move is largely symbolic because the US is already engaged in trade discussions with China and has implemented tariffs on the country's imports. However, it fulfils a presidential campaign promise by Mr Trump who pledged to name China a currency manipulator on his first day in office. The decision rattled investors, with Wall Street's main stock market indexes recording their worst trading day for Asia markets extended losses on Tuesday, with the Shanghai Composite down 1.
The move doesn't change much. Not legally speaking. But it is a big deal, accentuating just how fast things have gone south between the world's two largest economies.
0コメント