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Should China float the Yuan?

larztheloser
Posts: 857
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8/15/2011 11:52:58 PM
Posted: 5 years ago
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?
TheBaldKnobbers
Posts: 92
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8/16/2011 12:21:43 AM
Posted: 5 years ago
I doubt it would do any good for the chinese consumer as most foreign goods in China are taxed to high heaven via mysterious tarriffs and arbitrarily chosen sales tax that is not disclosed to the consumer. Most of the working base is in extreme poverty and largely uneducated. Most workers are factory workers. So it'd really hurt their economy, especially as other markets for cheap labor open up. In the future they should slowly move towards boosting the Yuan but at least wait until the eurozone quits being shakey. Last week french banks got crushed.
bluesteel
Posts: 12,301
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8/16/2011 12:28:05 AM
Posted: 5 years ago
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

You have to adopt a weighing mechanism - is it what's good for the US or what's good for China?

Floating would clearly be bad for China because it would hurt their export economy; their artificially devalued currency drastically boosts their exports. Some argue that if China stopped pegging, the US would gain manufacturing jobs back, but this assumes some other country wouldn't get them, which is false. We lost those jobs to globalization, not China. Many other countries, like Mexico, have lower labor costs.

Lastly, cite this. http://www.economist.com...

The devalued Yuan saves US consumers ridiculous amounts of money in cheaper Chinese goods.

I take checks in thanks. This figure will single-handedly win you the debate, I guarantee it.
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
TheBaldKnobbers
Posts: 92
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8/16/2011 12:35:20 AM
Posted: 5 years ago
also focus on the other possible supplies of cheap labor and cons of that labor mainly make the debate about the switching costs vs. the profit the chinese businesses would get.
larztheloser
Posts: 857
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8/16/2011 1:12:32 AM
Posted: 5 years ago
Any more international non-US-focused figures anybody knows (US figures are pretty useless here)? Thanks for the super-awesome answers BTW.
darkkermit
Posts: 11,204
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8/16/2011 1:58:36 AM
Posted: 5 years ago
At 8/16/2011 12:28:05 AM, bluesteel wrote:
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

You have to adopt a weighing mechanism - is it what's good for the US or what's good for China?

Floating would clearly be bad for China because it would hurt their export economy; their artificially devalued currency drastically boosts their exports. Some argue that if China stopped pegging, the US would gain manufacturing jobs back, but this assumes some other country wouldn't get them, which is false. We lost those jobs to globalization, not China. Many other countries, like Mexico, have lower labor costs.

Lastly, cite this. http://www.economist.com...

The devalued Yuan saves US consumers ridiculous amounts of money in cheaper Chinese goods.

I take checks in thanks. This figure will single-handedly win you the debate, I guarantee it.

How is that good? They are basically being sh!tted out of imports and obtaining better goods and services.
Open borders debate:
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TheBaldKnobbers
Posts: 92
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8/16/2011 5:35:12 AM
Posted: 5 years ago
At 8/16/2011 1:58:36 AM, darkkermit wrote:
At 8/16/2011 12:28:05 AM, bluesteel wrote:
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

You have to adopt a weighing mechanism - is it what's good for the US or what's good for China?

Floating would clearly be bad for China because it would hurt their export economy; their artificially devalued currency drastically boosts their exports. Some argue that if China stopped pegging, the US would gain manufacturing jobs back, but this assumes some other country wouldn't get them, which is false. We lost those jobs to globalization, not China. Many other countries, like Mexico, have lower labor costs.

Lastly, cite this. http://www.economist.com...

The devalued Yuan saves US consumers ridiculous amounts of money in cheaper Chinese goods.

I take checks in thanks. This figure will single-handedly win you the debate, I guarantee it.

How is that good? They are basically being sh!tted out of imports and obtaining better goods and services.

If you knew the taxation structure, they're already being shittedd out of imports
darkkermit
Posts: 11,204
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8/16/2011 5:50:12 AM
Posted: 5 years ago
At 8/16/2011 5:35:12 AM, TheBaldKnobbers wrote:
At 8/16/2011 1:58:36 AM, darkkermit wrote:
At 8/16/2011 12:28:05 AM, bluesteel wrote:
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

You have to adopt a weighing mechanism - is it what's good for the US or what's good for China?

Floating would clearly be bad for China because it would hurt their export economy; their artificially devalued currency drastically boosts their exports. Some argue that if China stopped pegging, the US would gain manufacturing jobs back, but this assumes some other country wouldn't get them, which is false. We lost those jobs to globalization, not China. Many other countries, like Mexico, have lower labor costs.

Lastly, cite this. http://www.economist.com...

The devalued Yuan saves US consumers ridiculous amounts of money in cheaper Chinese goods.

I take checks in thanks. This figure will single-handedly win you the debate, I guarantee it.

How is that good? They are basically being sh!tted out of imports and obtaining better goods and services.

If you knew the taxation structure, they're already being shittedd out of imports

So, why should they continue to be shitted on then? I don't see the benefit of creating an artificially low currency.
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TheBaldKnobbers
Posts: 92
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8/16/2011 6:30:44 AM
Posted: 5 years ago
At 8/16/2011 5:50:12 AM, darkkermit wrote:
So, why should they continue to be shitted on then? I don't see the benefit of creating an artificially low currency.

Their government is shitting on them already. I'm not advocating it. I'm just saying that lowering the cost of a US good by 20% is going to make a difference to a migrant worker who cannot afford the 200 dollar tarriff imposed by the chinese government.

The benefit of a low currency is that your citizens buy domestic, you have massive trade surplus and tons of factory jobs. If your citizens are only educated enough to work in a factory, then that's great for the chinese.
TheBaldKnobbers
Posts: 92
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8/16/2011 6:33:23 AM
Posted: 5 years ago
It's great for the US as well because we don't have to pay a bunch of indolent unionized workers demanding college pay for pulling levers and making widgets. In the end the US consumer wins, the chinese migrant workers suffer miserable lives of poverty which to them is paradise because it's better than dying of starvation as they had been doing in the past.
Wnope
Posts: 6,924
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8/16/2011 7:12:40 PM
Posted: 5 years ago
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

Who are talking about? Is the question "is is in China's best interest to float the Yuan" or "is it in the world community's best interest" or "the west" or "america" or whatever?

China has certain capital controls in place to keep the Yuan were they want. If the Yuan floated, China could open up its capital flows to the point where it would effect the currency.

However, keep in mind that the relationships between Chinese and US trade is currently predicated on Chinese systematically keeping their currency in check with Americas.

If the Yuan floats, I also suspect that the correction would be extreme and the effects long-lasting.
Wnope
Posts: 6,924
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8/16/2011 7:15:52 PM
Posted: 5 years ago
At 8/15/2011 11:52:58 PM, larztheloser wrote:
I'm doing a debate on this in about a week (in real life, not on DDO). I'm opposing the motion that China should float the Yuan. Unfortunately I'm not an expert at economics so I'm wondering what people here think the key arguments are on both sides?

My guess is that the aff case (correct me if I'm wrong) will be that the distortion of the price of their currency leads to inflation as local imports become more expensive when their economy grows. The obvious neg counter-argument is that many in China will become unemployed as local exports are kept cheaper under the status quo, so increasing the cost of Chinese exports will mean fewer people buy them and Chinese factories are forced to lay off workers? Am I right? What other considerations are there?

One other thing to consider: there is currently a financial system in place with the US and other countries that aims to counter the non-floating yuan.

If the Yuan floats, the effects will be partially dependent on how other countries change their trade policy with China. If every country keeps up their defenses and China floats, it will put them at a great disadvantage.

If everyone put their guns simultaneously (assuming that is possible), then it could be that China and others countries can all gain.
larztheloser
Posts: 857
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8/16/2011 7:23:46 PM
Posted: 5 years ago
The motion is simply if China should float. I'm guessing the key stakeholders are China and the world. US examples aren't so great outside of the US.

I must admit I don't understand your capital point. Why can't they open capital flows under a fixed rate currency? What is a capital flow?
Wnope
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8/17/2011 1:26:40 PM
Posted: 5 years ago
At 8/16/2011 7:23:46 PM, larztheloser wrote:
The motion is simply if China should float. I'm guessing the key stakeholders are China and the world. US examples aren't so great outside of the US.

I must admit I don't understand your capital point. Why can't they open capital flows under a fixed rate currency? What is a capital flow?

If you suddenly turn a bunch of dollars into pesos, the exchange rate between dollars and pesos change.

If China wants to control their currency value, they can't allow excessive transfers of the Yuan into other currencies/foreign assets. They can pull this off because they aren't a democracy and they have a huge central bank reserve to offset minor capital transactions.
Wnope
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8/17/2011 1:33:31 PM
Posted: 5 years ago
At 8/16/2011 7:23:46 PM, larztheloser wrote:
The motion is simply if China should float. I'm guessing the key stakeholders are China and the world. US examples aren't so great outside of the US.

I must admit I don't understand your capital point. Why can't they open capital flows under a fixed rate currency? What is a capital flow?

Another suggestion: take a look at Latin American countries that were pegged to the dollar and then floated. You'll find in almost every case that the country was about to explode/implode if it didn't float.

The opponents will argue that the devaluation (caused by floating) caused the following economic crisis. One example is the 1994 Mexican Peso Crisis. Make sure to note how it was economically necessary to float the currency, and the negative case studies (such as the Peso Crisis) tend to result from ineffective implementation of currency floating and not floating itself.
Wnope
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8/17/2011 1:56:21 PM
Posted: 5 years ago
Even better, attack it at the roots.

Take a look at something called "The Impossible Trinity." It proves that you cannot simultaneously have a fixed exchange rate, free capital (currency) movement, and national economic autonomy at the same time. You can only have two at most. The Euro is an example of giving up national autonomy to maintain fixed exchange rates. China is giving up free capital movement to maintain fixed exchange rates. America gave up fixed exchange for national autonomy (see Bretton Woods).

http://en.wikipedia.org...
bluesteel
Posts: 12,301
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8/17/2011 5:58:46 PM
Posted: 5 years ago
If China floats the Yuan, it will not need as many foreign currency reserves (which it uses to keep it pegged to the dollar - it essentially buys dollars using Yuan). It then uses its dollar reserves to buy Treasuries (since it needs a rate of return, or it is losing money from inflation). Hence, a floating Yuan means China no longer buys US debt. You can then debate whether that's good or bad (if no other buyers appear, clearly bad for the US and what's bad for the US is bad for world market - see S&P downgrade).

However, China has already significantly revalued their currency to head off inflation, which is REALLY high right now in China.
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
bluesteel
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8/17/2011 6:01:20 PM
Posted: 5 years ago
Also, China's artificially cheap goods have put downward pressure on world inflation. Although the effect is rather modest. http://www.federalreserve.gov...
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
bluesteel
Posts: 12,301
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8/17/2011 6:04:47 PM
Posted: 5 years ago
At 8/16/2011 7:23:46 PM, larztheloser wrote:
The motion is simply if China should float. I'm guessing the key stakeholders are China and the world. US examples aren't so great outside of the US.

I don't understand; is this for school, student Congress, Model UN? Are you debating this in front of non-US judges because I can tell you that judges really only care how things affect them, not the world.

Since China pegs mostly to the dollar (like most other countries who peg, like Saudi Arabia), the main stakeholders are China and the US. It's clearly not in China's interest or they would already do it.

China did move to a basket of currencies recently, but they backed off the Euro, obviously, since it has had so many problems.

I must admit I don't understand your capital point. Why can't they open capital flows under a fixed rate currency? What is a capital flow?
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
bluesteel
Posts: 12,301
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8/17/2011 6:11:30 PM
Posted: 5 years ago
At 8/17/2011 5:58:46 PM, bluesteel wrote:
If China floats the Yuan, it will not need as many foreign currency reserves (which it uses to keep it pegged to the dollar - it essentially buys dollars using Yuan). It then uses its dollar reserves to buy Treasuries (since it needs a rate of return, or it is losing money from inflation). Hence, a floating Yuan means China no longer buys US debt. You can then debate whether that's good or bad (if no other buyers appear, clearly bad for the US and what's bad for the US is bad for world market - see S&P downgrade).

http://www.eastwestcenter.org...
"it is unrealistic that any renminbi exchange-rate adjustment could rein in the burgeoning U.S. trade deficit. And if the adjustment were drastic the United States could be the big loser: driving China out of the market for U.S. treasuries would most likely have calamitous consequences, not only for the dollar but for U.S.
credit markets and for the U.S. economy in general."


However, China has already significantly revalued their currency to head off inflation, which is REALLY high right now in China.
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
pvwebb
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1/1/2015 9:24:48 PM
Posted: 1 year ago
I would like to revisit this topic. All the discussion seems to concentrate on short term future effects of floating the yuan. But, how has China holding the yuan down to a fixed exchange rate with the US dollar affected the world economy? One must answer this question to answer the long term effects of floating the yuan.

China not floating this yuan as done long term damage to all manufacturing countries other than China. It has had a similar effect to selling products for less than the cost of manufacturing to drive the competition out of business. In other countries such as Japan and South Korea labor costs went up as they developed manufacturing. China is saturating its labor market and labor costs should have already risen there. If the yuan had already been floating, China would already have a thriving consumer base of their own far greater than the rest of the world. Instead China has crashed the world economy to conquer and control the world economy.

Short term we will probably see little effect from China floating the yuan. At the beginning it will probably be painful for the economy. But, it is necessary for a healing process in the economy. Floating the yuan is probably the best for the healing process. Forcing it to rise would probably be as damaging as hold it down.