Question

Why is the United States pushing for the Chinese currency to appreciate? Why is China reluctant to allow its currency to appreciate?

Reflect on how policy decisions made in China affect the strategies of U.S. companies.

Answer 1

When a country appreciates its country with respect to currency of other country, then its export becomes costlier and imports become cheaper. Thus its exports decreases and imports Increases.

On the other hand, when a country depreciates its currency with respect to currency of other country or its appreciates currency of other country with respect to currency of its country, then its exports become cheaper and imports become costlier. Thus its exports Increases and imports decreases.

From the above two theories of currency appreciation & depreciation. We can say that –

• US is pushing for Chinese currency to appreciate –
  • To increase its exports to China, and
  • To reduce its imports from China
• China is reluctant to allow its currency to appreciate so that its exports does not decrease and its imports does not increase.

• The policy decision in China are such that, first they exports the goods in much cheaper rate as compared to the importing country to capture the market. Once the market is captured and the country of importing country could not survive due to facing tough competition from Chinese products which are available in market at much cheaper rate. Once the market is captured, the Chinese companies increases the cost of products to make significant economic benefit by monopolising the goods. Thus it effects the US companies's decision making to their disadvantageous like reducing their cost of product etc.