There are benefits and costs to China as well. The Chinese government likely undervalues the yuan in order to stimulate exports and keep Chinese factories producing, which means workers have jobs. Paradoxically, however, work may be all they get from the deal. Since the goods are exported, they are not available for consumption by Chinese workers. In effect, the Chinese government's currency policy is subsidizing the consumption of goods in the U.S. and other developed countries.
Overall, the benefits to the U.S. from China's low-currency-value policy probably outweigh the costs. Were the U.S. to make good on threats to punish China for currency manipulation, the damage to the United States could be quite large. Like it or not, the trade incentives of both the United States and China have been aligned for a long time and any large changes in trade policy would be damaging to both.
Kerk Phillips is an associate professor of economics at BYU. Richard W. Evans is an assistant professor of economics at Brigham Young University.
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