Question

1. How can currency value create a trade barrier? Explain the basis for this claim that China is a currency manipulator. What is the effect of the currency value on Chinese firms and on American firms? What would be China’s motivation for such manipulation? From the U.S. point of view, how should the currency value change and for what purposes?

2. Is Germany a currency manipulator, as suggested in the NPR story? Should the U.S. treat Germany the same as China–for administrative, trade, and international policy purposes? Why or why not?

Answer 1

According to Robert Mundell the floating exchange rates attracts new imports and reduce the trade deficit. Chinese economy is self sufficient in every manner. It will change the currency rte with respect to the international market conditions. The relative value of currency makes differences through trade. The Chinese economic transformation makes the disappearance of American manufacturing jobs. Through reducing the value of currency the Chinese good become expensive in US economy. This manipulation of currency leads to slow down of economic growth of US. Export of goods and services than impost is one of the most important revenue for Chinese economy. Motivations of China through this manipulation are to boost currency account surpluses, political gain, it avoids inflation, make export more competitive, reduce capital inflows. From US point of view, it leads the shattering in growth rate of manufacturing sector. Chinese economies strictly avoid the capital inflow. The value of currency fall down lead the expensive export.
Germany is also a currency manipulator. They used these criteria to defeat their trading partners. Germany considered as the main hurdles to US economy. The structural imbalance of German trade underscores the economic diversity. Germany argued that the American products are manufactured using the foreign products; then can make this using domestic supply chain and increasing employment rate with high wage rate. On the other hand, the Germany grants a small fiscal stimulus to US. US increase its growth rate through different measure which cops up with this manipulating currency rate. Reduction of trade deficit and reduction of capital inflow leads to the consistency of currency rate and economic growth among the countries like China and Germany.