A STUDY ON WHY THE UNITED STATES MUST BE CAUTIOUS IN ATTEMPTS TO ACCELERATE APPRECIATION OF THE RMB

Abstract

China’s economy has grown exponentially, a level of growth unmatched by any modern economy. Millions of Chinese citizens have been lifted out of poverty as a result, and the standard of living for many Chinese has reached a new trajectory. In addition, with a growing middle class and increased money supply, real estate and other domestic industries are flourishing. Lastly, the U.S.-China bilateral trade reached some of its highest levels throughout the past decade, which has further integrated two economies that had little to no exchange just 30 years prior.

However, while China’s economy is benefiting from broad growth on many different levels, the U.S. is currently facing a grime economic outlook. Many economists and policymakers attribute an undervalued Chinese currency as the underpinning from which many of the economic concerns in the U.S. ranging from an unprecedented trade deficit to the unfolding of many domestic industries are possible. As a result, a variety of legislative remedies have been proposed in the U.S. Congress to recompense for the adverse effects that come as a direct result of China’s undervalued currency.

This thesis provides a thorough analysis of the policy proposals introduced in Congress as well as current policies of the Executive Branch. In doing so, the effects of similar aggressive policies currently being deliberated that were employed during the 1970s and 1980s to address the undervaluation of the Japanese yen will also be examined.

Given the significance that a growing Chinese economy has on the global market, in addition to the strong calls for reform in the U.S., this thesis advocates for careful policy measures that fall short of aggressive unilateral action taken by the U.S. In contrast to accelerating appreciation, this thesis argues that allowing a gradual increase could prove helpful in maintaining a stable Chinese economy and the long-term interest of the U.S. economy as over 1 billion Chinese consumers increasingly began to purchase American goods.