People might argue that the United States are getting flooded with cheap imports from China not because China is really competitive in terms of cost, but because China has artificially kept its currency undervalued and does fly under the radar with it. If the Yuan is allowed to appreciate, imports from China may no longer be cheap enough to compete with goods and products produced in the US.

As a matter of fact, it could really be that the Chinese never will learn that they are cost competitive, and it's really less expensive to produce products in China than it is to produce those goods in the US.

The truth probably lies somewhere in the middle.

In 1986 James Baker skillfully maneuvered to have 5 nations to sign Plaza Accord to manipulate the currency rate. It caused US dollars to depreciate more than 50% against Japanese Yen, but the agreement has never been efficacious to reduce our trade deficit with Japan, which was the intended goal of James Baker. However, it contributed to the Japanese asset price bubbles. The burst bubbles ushered in a two-decade-long recession so vexatious and virulent that Japan is still unable to shake off. The Accord effectively eliminates Japan’s chance to play a significant role in international monetary system. In 1987 Louvre Accord was signed to halt the depreciation of US dollars.

James Baker is unquestionably a master of diplomacy, brilliant beyond imagination.

This country knows how to manipulate the currency rate than poor Japanese.

Can we duplicate the same success when we come to deal with Chinese? We can as long as Chinese are so poor creatures as Japanese and are oblivious of historical lessons. If Chinese turn out to be other than what we want them to be, this economic warfare would be a very bloody battlefield.

US seems to be missing the reason why China piles up such huge trade surpluses year in and year out.

China has US by the tail - US businesses are hooked to huge profits that cheap Chinese products generate for them as a walk through any Walmart, Home Depot, Sears and Macy’s filled with Chinese goods prove and US government is hooked to huge investments that China makes in US governmental securities from the sales of cheap Chinese products to US businesses.
China’s power is multiplying day by day and now there is NO power on earth capable to stop China, least of all U. S.

Nixon-Kissinger’s embrace of China to counter Soviet Union in 1972 has come back to haunt U. S. with vengeance.

The world history will record last forty years as the most momentous for the very fact that balance of power has started to shift from West to East because of West’s leader embracing China to counter Russia in 1972.

Afterall China was a pariah country in the world just like today’s North Korea until Nixon’s 1972 visit. All the West European and East Asian countries stayed away from China following the US lead until 1972 and embraced China after Nixon’s visit. While US would not give MFN status to Soviet Union (remember Jackson-Vanik amendment?) unless Russia shed Communism, it had no problem giving it to China’s Communist dictators with a capitalist mask. Trade with China expanded by leaps and bounds during 12 years of Republican rule beginning in 1981. After campaigning against butchers of Beijing in 1992 elections, even Bill Clinton became enthusiastic supporter of trade with China once he took lessons in foreign policy from Nixon in early 1993 during a special Whitehouse-arranged meeting. US also promoted China to a super power status by accepting it as a permanent UNSC member.

Had it not been for that Nixon embrace in 1972, China’s rise to super power status would have been far more slower with all the US, West European and East Asian markets closed to cheap Chinese products. Had it not been for that Nixon embrace, China’s technological progress would have been far slower in the absence of West’s technology transfers. Had it not been for that Nixon embrace, China’s military progress would have been far slower in the absence of huge forex reserves that China accumulated from the massive exports of cheap Chinese products and China used those forex reserves to acquire latest military technology.

As such U. S. has strengthened Communist Party’s hold on Chinese society by embracing Mao’s China - that embrace has afforded Communist Party to create millions of jobs for its hungry masses, replacing the frustrations of poverty that could ignite mass revolt. Even 1989 Beijing massacre did NOT stop democratic U. S. to divorce Communist China, China had already become that important to U. S. economy by that time.

Little could Mao or Deng have imagined that by wearing a capitalist mask, their followers will beat capitalists at their own game. Lenin used to say that ’capitalists will sell us the ropes with which we will hang them’. With West selling such proverbial ropes in the form of technology transfers, Chinese Communists have proven that Lenin saying quite prophetic.

For now, I believe China has to keep her currency low to get the competitive edge. The moment, they are on their feet and established, I'm sure they will not continue this. At that time, their goods would have gone higher tech and they would be able to compete on a more level playing field.

For now her people have to be fed and given jobs and that is their priority. If there's too much bashing, it may have undesirable consequences. Growth must continue.

It seems like US is missing the reason why China surpluses yearly. It may be alarming for the US that China's economy is booming and increasing yearly. When I was looking for some stuff online I realized how China has progressed. Most of the jobs are being outsourced in China and as a result, their economy is getting better.

It caused US dollars to depreciate more than 50% against Japanese Yen, but the agreement has never been efficacious to reduce our trade deficit with Japan, which was the intended goal of James Baker. However, it contributed to the Japanese asset price bubbles. The burst bubbles ushered in a two-decade-long recession so vexatious and virulent that Japan is still unable to shake off.
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According to some of the real numbers from the past decade when the Yuan is appreciating for 4% continuously, the American trade deficit has been increasing contrary to ordinary beliefs or intention of the law. This implies that the valuation of the Yuan will not affect the number of jobs or the trade surplus in USA. If this revaluation of the Yuan started a trade war, American consumers are the one being hurt.

1. Within a short time, production still remain in China, American consumers pay for more of the same products.

2. A newly relocated production facilities will not be back to USA. As such, a new production facilities can not guarantee quality of the product.

3. China has already expanded its foreign trade with other countries beside USA. For example, China is the largest trading partner for Australia, India, Japan, Taiwan, etc. While the export to USA may decrease from China, the large trade deficit still maintained from other countries like Vietnam, Indonesia, Thailand, India, etc. At the same time, China will increase export to other countries. The effect may not be that detrimental to China.

4. In the long run, China can increase even more of its internal consumption. At the same time, it foreign reserves earning may be decrease due to less foreign trade. And then, China will not buy any more USA debt and at the same time, it will sell some of its USA debt to fund even more internal development and investment.

It's pretty clear that China is winning, but we decided to let them win. I mean, it started at what, Walmart probably, with people choosing the cheapest crap they could find that did the job...the stuff from China was selling, and selling fast, so before we knew it, everything was being manufactured in China, and when the jobs here started going away, and before we knew what was going on, there was a financial crisis.

You can still go to Wal-Mart and see how much "Made In The USA" stuff sells...it isn't much!

China got what deserved for selling cheap junks in exchange for worthless dollars.

All china communist leaders shall be impaled for holding worthless Treasury, and you will soon see the fear in their eyes when their collective wealth soon to evaporate due to dollars falling even further.

All low cost manufacturing will migrate to Vietnam, Laos Cambodia Burma Thailand, Bangledash Pakistan brought to you by Walmart. Then the outrage of china people will cause second China revolution – good for the world.

And the biggest laugh is on Peter Morici, Paul Krugman, Peter Bergsten, left wing economists, trade union activists, demoract rabble rousers ‘ bunch of big losers.

China’s export-led growth is rooted in a double transition of structural change and demographic transition. Accession to the WTO has allowed China to fully integrate into the world system and capture the gains of its comparative advantage in abundant labour supply.

China has managed nearly double-digit growth rates since it began economic reform and opening in 1978. The reform has transformed the Chinese economy from a planned economy to a mixed economy where the market plays a dominant role in resource allocation. Much of China’s remarkable growth between 1978 and 2000 can be explained by the reform. But the more recent and faster growth in the last decade has been mainly driven by exports.

While other factors (such as the exchange rate, distortion of factor prices, a weak financial sector, and an investmentdr dre headphonesoriented government) also contribute to China’s imbalance problems, the double transition is its most fundamental cause. The double transition is an inevitable process and helps explain China’s fast economic growth. And it requires new ways of thinking in dealing with China’s and, for that matter, the world’s imbalance problems.

Two conclusions follow. Focusing on nominal parameters such as the exchange rate will not solve the imbalance problems. Structural adjustment should not be directed to eliminating imbalances, but should be geared toward how to utilize the savings created by the surplus countries. China’s savings are created by its double transition. Other emerging countries, notably India, will also emerge as exporters of savings even if savings from China dry up when it finishes the double transition.

I think China is finding out that it is not that easy to manipulate currency, not that they are having a hard time pegging it to the dollar, but they are unable to predict what is best for China. There are so many other circumstances that impact a currency and its country. How can China keep their eye on the currency and the rest of the global market without making a mistake and a mistake in this realm would be catastrophic. It would mean a serious decline in the quality of life and exports would most likely shrink. There would be no more useless goods traveling over from China, like the shower caddy, so I don't think China will be able to maintain their grip on their currency for much longer.

I don't know how China plans on getting this right year in and year out. It seems like markets are too hard to control due to their complexity and all of the interwoven variables. How can China control things without impunity? There is no way that their current fiscal policy of controlling the RMB can last, without hurting the global financial market. China is one or 2 missteps away from a complete financial disaster and this would not bode well for all of the immigrant workers. They could easily revolt and China would not be able to stop it. I think China needs to work more on opening their market to the free flow of a good free market and not try and control or rehab. Only time will tell, but just some simple thoughts on a complex problem.