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Pros And Cons: Legislation

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Ryan Wilding ECON 4423 Policy Brief Professor McNown Pros and Cons: Legislation to Impose Sanctions on China for Currency Manipulation The renminbi currency has experienced a fixed exchange rate. The renminbi is seen as undervalued because the value of its currency has been scrutinized to be artificially low, which gives Chinese companies an unfair advantage over floating exchange rate countries such as the US. China has purchased more than $2.2 trillion in foreign exchange reserves in order to maintain an undervalued currency (Scott 2010). China buying US reserves increases the demand for dollars and increases the value of the dollar. Primarily, this makes Chinese goods cheaper in the US and US goods more expensive in China. Keeping a weak currency helps China to boost international exports because other countries purchase China’s goods at a relatively lower price. This helps to maintain growth in China’s economy and provide more manufacturing jobs, a staple to their economy. …show more content…

This causes US exports to become less competitive and Chinese imports more attractive, ultimately increasing foreign demand. The US should feel threatened by a potential loss of domestic demand causing a loss in available jobs in the US (Pettinger 2011). US consumers are able to purchase Chinese goods at a lower price at the expense of a decreased demand for US goods, leading to a less robust export economy in the US. The US should propose legislation to impose sanctions to limit the risk the US faces concerning weak growth, larger trade deficits, and increased unemployment. On the other hand, the US should halt the threat to propose legislation for fear of decreased buying power of Chinese goods. In favor of the sanction, the US’s current focus in on jobs rather than buying power providing a greater economic benefit to the US by threatening

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