Rep. Hunter Is Deeply Confused
23 October 2007
News Editor, All Things Considered
National Public Radio
Dear Editor:
In your series on candidates' stump speeches, you featured today Rep. Duncan Hunter's tirade against China. Mr. Hunter simultaneously accuses China of "cheating" on trade by keeping the value of the yuan too low against the dollar AND alleges that China spends the dollars it earns to buy military weaponry that threatens U.S. national security.
Like all protectionists, Mr. Hunter is deeply confused.
By spending its dollars, Beijing fails to remove dollars from the foreign-exchange market and thereby fails to raise the dollar's value against the yuan. So the only way Beijing can then reduce the yuan's value is to inflate the supply of yuan. The unavoidable result is higher prices of Chinese-made goods and services - higher prices that offset the lower value of the yuan against the dollar.
In short, the only way the Chinese government can reduce the yuan's value against the dollar is to reduce the yuan's value against everything else.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
News Editor, All Things Considered
National Public Radio
Dear Editor:
In your series on candidates' stump speeches, you featured today Rep. Duncan Hunter's tirade against China. Mr. Hunter simultaneously accuses China of "cheating" on trade by keeping the value of the yuan too low against the dollar AND alleges that China spends the dollars it earns to buy military weaponry that threatens U.S. national security.
Like all protectionists, Mr. Hunter is deeply confused.
By spending its dollars, Beijing fails to remove dollars from the foreign-exchange market and thereby fails to raise the dollar's value against the yuan. So the only way Beijing can then reduce the yuan's value is to inflate the supply of yuan. The unavoidable result is higher prices of Chinese-made goods and services - higher prices that offset the lower value of the yuan against the dollar.
In short, the only way the Chinese government can reduce the yuan's value against the dollar is to reduce the yuan's value against everything else.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday April 16, 2008 at 2:17pm