As global markets go through another week of selling and anxiousness, a new record was set yesterday: the Chinese yuan that much maligned, politically charged national currency hit a record high against the U.S. dollar.
For the past five years, U.S. politicians, unions, and many companies have used the yuan as a piñata (an appropriate mixed metaphor given that one of the countries truly hurt by the rise of China's low-cost manufacturing has been Mexico). That has continued almost unabated even as the Chinese currency has steadily appreciated against the dollar. That rise began in 2005, was halted in 2008, and then resumed again last year when Beijing deemed the global financial system to have sufficiently stabilized. Over the past six years, the yuan has gone from just over 8.1 to the dollar to just under 6.5.
That should come as a surprise to those American critics who have demanded that China revalue its currency to address the trade deficit, stop undermining U.S. manufacturing and "level the playing field." But Beijing has allowed the currency to rise not because it accepts the logic of those in the U.S. who have fulminated against the yuan as the cause of multiple domestic ills. It has done so because a stronger currency is fully in keeping with the Chinese government's stated policy of focusing on its own domestic consumer market in the years ahead.
Yet, many American policymakers continue to rail against China as if there has been little change. Said Senator Sherrod Brown (D-Ohio) several weeks ago: "Ohioans have always produced quality goods that are sold around the world. Chinese currency manipulation hinders American manufacturers who are eager to put Ohioans back to work. ... China's unfair currency manipulation has gone on for far too long, and it's clear that legislation is needed to level the playing field. With factory doors continuing to close across the U.S., Ohio workers and small businesses can't afford to wait any longer." Brown added, "The Chinese government has taken small steps to allow the yuan to appreciate, but it is not enough. Actions speak louder than words, and we've heard a lot of words over the years."
Yes, Senator, but we have seen quite a bit of action on currency, though you would not know that from the remarks above. In fact, the only thing that has been demonstrably true is that the more currency becomes a public focal point of trying to shame or browbeat the Chinese, the more difficult it becomes for the Chinese government to allow the currency to appreciate. Why? Because then it becomes an issue of national pride rather than prudent economic policy, and one thing that is very touchy in China is the appearance of kowtowing to the United States.
As China's currency continues its relentless rise, American jobs are not magically being created. The argument that Chinese currency manipulation has caused American job loss is being undermined by the rise in the currency with no substantial U.S. job gains. Blaming China for American domestic ills has become almost automatic (as my colleague Michael Schuman recently noted), and has done nothing to address the structural challenges the United States faces in a dynamic and competitive world.
None of this is to say that China is especially fair or transparent. It pursues its self-interest zealously, as most nations do. The United States should do the same, and that means dealing with structural unemployment at home, an issue that the value of China's currency will affect only marginally, if at all.