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China's Exchange Rate Policy

In: Business and Management

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What was the impact of China’s exchange rate policy on doing business with and “against” China?

The Yuan(RMB) is loosely pegged to the U.S dollar, although China claims that its currency value is managed against a basket of currencies. China has been accused of illegally keeping the Yuan fixed against the U.S dollar. By keeping their exchange rate low, in particular against European currencies, some argue that China gained an unfair competitive advantage in trade. Between 1978 and 2004, GDP in china grew at an average 9.5 % annual rate, FDI increased from zero to $64 billion annually, and trade increased from 10% of GDP to 79% of GDP.
U.S imports from china has increased significantly, while manufacturing jobs in the U.S has declined. For example, the case study” China: to float or not to float? (A)” mentions that because of china’s exchange rate policy the U.S had to close 18 textile plants, which created a loss of 16,000 jobs. People tend to believe that China’s growth is taking place at the expense of its many trading partners. Politicians ignore the fact that it is often FDI and foreign companies that are booming the Chinese export locomotive. The truth is that China’s rapid export growth also has a positive impact in East Asian countries. China is the largest importer of South Korean and Taiwanese and it also imports a substantial amount of goods from Japan. Despite the fact that exports of other Asian countries to the U.S decreased, the total exports as been growing as these countries trade among themselves. Companies that produce in China not only benefit from the undervalued Yuan, but also from the abuse of workers’ rights. U.S companies such as Wal-Mart support China’s exchange rate policy, while many other companies that produce in the U.S find themselves in a hard position. The U.S election, trump’s success, show us how protectionist pressures in the…...

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