A Stronger Yuan Is Good for China, Little Help for U.S. Job Creation

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Chinese officials will let the yuan, or renminbi, rise against the U.S. dollarChina finally caved in and relented to, well, serving China's best interests.

American politicians have been browbeating Beijing to let the value of its yuan currency appreciate for months. And on Saturday, Chinese authorities announced their intentions to move to a more flexible exchange rate in a tacit signal that the economic expansion there is robust.

Details remain sketchy, but China is likely to let the yuan appreciate gradually against the U.S. dollar. That's a good move for a rapidly growing Chinese economy facing inflation and pockets of labor unrest. A stronger currency will ease inflationary pressures and boost much-needed consumption by raising the purchasing power of Chinese consumers.

Little Relief for Limping U.S. Economy

For a limping American economy facing massive unemployment, though, it's likely to bring little relief. China has offered a convenient target for a U.S. Congress up for reelection later this year and able to foster job creation in the U.S. about as much as it has been able to stop oil gushing into the Gulf of Mexico.

Claims that China gets an unfair advantage in export markets by undervaluing its currency need to be balanced with a recognition of how broad the disparities between the two countries really are. Gross domestic product per capita in the U.S. comes in at about $48,000. In China, it's about $3,300.

The U.S., in other words, isn't about to trump China by selling the world cheap pairs of tennis shoes its workers sewed any time soon. Real and sustained investments with a long-term view need to be made as Columbia economist Jeffery Sachs recently argued. Of course, the impact of that will take longer to materialize than incumbents facing voter fury in November can be comfortable with. But it's the only way to preserve Americans' standard of living.

Other Developing Countries Cheer the Move

Other developing countries like India and Brazil that were pushing China to boost the value of the yuan will also cheer the move, and for good reason. With per capita GDP of $1,000 and $8,000 respectively, currency fluctuations can actually alter the competitive landscape between those nations.

China's seeming acquiescence, meanwhile, may put U.S. politicians leading the charge for a currency revaluation in an even tougher spot. Railing against a foreign menace supposedly siphoning off jobs makes for good campaign speech fodder. When American jobs fail to reappear, though, those members of Congress will have to scramble for a new target -- or more meaningful action.

Senator Chuck Schumer (D-N.Y.), for example, is already railing against China for vague language in outlining its intentions. But Schumer's other recent projects like expanding soybean insurance aren't likely to be big engines of American job growth, either.

China, then, may come out ahead by giving in to the demands of the very U.S. politicians who will now find themselves in even deeper trouble.
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