GENEVA — Pressuring China into allowing the value of its currency, the yuan, to float upward is not likely to have much impact on its soaring apparel and textile exports, Lawrence R. Klein, a Nobel Laureate for economics, said last week.
“A basic reason is that the wage differential between China and many other trading partners is so large that this contribution to price advantage in favor of China’s exports, in many sectors, dominates currency movements,” Klein said in a keynote address Wednesday to a forum of the United Nations Conference on Trade & Development.
China in July abandoned the yuan’s decade-long solo peg to the dollar — at a rate of 8.28 yuan to $1 — in favor of a managed float based on a basket of currencies. So far, this move has only resulted in a minor appreciation of the yuan.
Critics of Chinese trade policy contend that the yuan is undervalued by as much as 40 percent, putting U.S. companies at a competitive disadvantage. The U.S. treasury is also in the midst of a study to determine if China has manipulated its currency.
Klein, a professor emeritus at the University of Pennsylvania, said World Bank estimates put the wage differential between China and the U.S. is a 20-to-1 ratio. As for the impact of the end of the quota regime, he said many countries “felt the loss of economic activity when China’s exports overwhelmed the market.”
He added that, while China has shown some renewed constraint, it is still “feared by many other countries in this sector of activity.”
China and India are the driving forces of the global economy, Klein said, with the U.S. economy “stumbling with twin deficits, an elevated inflation rate and a costly war.” He said China’s growth rate of gross domestic product of between 8 and 10 percent has been “a remarkable quantitative record for more than 25 years and still going strong.”