Renminbi, hot debate topic, but truth is nuanced

Is China a currency manipulator?

Some of the more complicated exchanges during the presidential debate on Tuesday involved how to deal with China's efforts to increase its exports by keeping its currency at artificially low levels, an issue that has had considerable effects over the years on competitiveness, trade deficits and, some economists contend, American jobs.

Both candidates on Wednesday repeated the arguments they had voiced on the campaign trail. Mitt Romney criticised President Obama for not doing more to persuade China to stop intervening in currency markets. Obama said he was tougher toward Beijing than Romney would be if he were in the White House. The two arguments obscure a more nuanced reality: adjusted for inflation, China's currency has strengthened considerably through much of Obama's tenure.

Some economists who used to be critical of China for undervaluing its currency, the renminbi, are now much less so. "Romney's vow to label China a currency manipulator is a position that is not supported by recent economic data," said Eswar S Prasad, a Cornell professor who specialises in Chinese currency and trade policies.

But for all the improvement, those gains have recently stopped or started to erode. At the same time, Chinese exports to the US are strengthening again, rising 5.5% in September from a year ago. That partly reflects increased demand as the American economy begins to show signs of recovery. Romney was caustic in accusing China of unfair policies.

"One of the ways they don't play by the rules is artificially holding down the value of their currency," he said. "Because if they put their currency down low, that means their prices on their goods are low and that makes them advantageous in the marketplace."

Romney promised that if elected he would immediately name China a "currency manipulator", a designation that would mandate further negotiations with Beijing. It could lead to American retaliation if Congress passes legislation authorising special tariffs for countries deemed to manipulate. Romney was cautious, though, in threatening to actually impose tariffs on Chinese shipments to the US, saying he would do so "if necessary".

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