Wednesday, May 18, 2005

Getting Tough With China?

According to the AP via the NYTs, the Bush Administration has warned China to stop manipulating both the dollar and the yuan, unless they want the U.S. to retaliate. By pegging the yuan to the dollar and then buying up "more than $250 billion in dollar-denominated securities over the past year" -- bringing their holdings to about $600 billion overall -- the Chinese have kept the dollar artificially high compared to the yuan, thereby making Chinese exports dirt cheap in the U.S. The only thing I can write is it's about time!

It will be interesting to see how giant retailers like Wal-Mart, who use the overpriced dollar to supply most of their inventory from China, will respond to the possibility of the dollar and the yuan approaching each other in value. Will they simply pass the price increase to consumers or will they marshall their lobbyists to raid Congressional offices on Capitol Hill? Probably both.