President Obama was in Seoul Thursday to meet with other G20 leaders on the global economic recovery. The meetings were overshadowed by disagreements between the U.S. and China over trade imbalances and currency devaluation. Currently, the U.S. is running a $44 billion trade deficit, while China is running a $27 billion trade surplus. The U.S. and other G20 leaders are encouraging China to allow its currency to rise in value in an effort to increase competition in the export market and ease the imbalance. An increase in the value of the yuan would make Chinese exports more expensive, which would discourage U.S. consumers from purchasing them. In the same way, a decrease in the value of the U.S. dollar would make U.S. exports cheaper and more attractive to consumers in China, which would help make the trade imbalance smaller. Thus far, China has been unwilling to allow its currency to rise in value, which many claim has hampered global economic recovery. What do you think? Should China have to allow its currency value to rise in order to encourage economic growth in America? Is the Chinese economy so tied to the American economy that it would actually hurt China not to do so?
Source: Conor Dougherty & Tom Barkley, U.S. Trade Deficit Narrows, Wall Street Journal, Nov. 11, 2010.