Misguided proposition concerning currency rate management

By David C. Wong

US-China competitiveness is determined by PC/(PUSxE), where E is the number of yuans that a US dollar buys, PC is the Chinese price level of manufactured goods and PUS is the US price level for similar manufactured goods. When E gets smaller, i.e., the yuan appreciates and the dollar buys fewer yuans, the ratio increases and the US becomes more competitive vis-à-vis China. However, notice that if PC is reduced while PUS increases, then the ratio can very well decrease, in spite of a fall in E.

In other words, it is not manipulating E alone that gives Chinese commodities the edge over US commodities in global trade, but the fact that China can hold down its domestic costs by keeping wages low and using tech-nology and workplace discipline to boost output per hour in its factories.

Worker exploitation

In effect, China can exploit its workers more efficiently than US employers in the US On top of this, China can set up and equip factories more cheaply than the US and ensure that the necessary production infrastructures such as electricity supply, transportation, and raw materials are available to its firms. These are the sources of China's advantage over the US in global trade in manufactured goods. Merely forcing China to appreciate the yuan won't solve the problem of trade imbalance between the US and China.

In this light, Claude Clarke's insistence that managing the US$-JA$ effectively is some kind of panacea for building up a globally competitive manufacturing sector in Jamaica, is as ill-informed as it is naive.

Campbell, Nugent and Wong are political economists who do research and discuss developments within the globalcapitalist economy daily onthe "Caribbean Dialogues" online forum. They can be reached at tcampbell@eee.org, reggienugent@gmail.comand dwong@fullerton.edu respectively.