The USA - China economic relations U.S.-China economic ties have expanded substantially over the past three decades.• Total U.S. - China trade rose from $2 billion in 1979 to $457 billion in 2010.• China is currently the second largest U.S. trading partner, its third-largest export market, and its biggest source of imports.
• The trade deficit has surged, rising from $10 billion in 1990 to $273 billion in 2010.• Trade became very complex• Large and growing market for US exporters.• low-cost goods from China greatly benefit U.S. consumers .
China‘s Holdings of U.S. Securities• China’s holdings of U.S. public and private securities are significant.• These securities help the federal government to finance its budget deficit.• China is the largest foreign holder of U.S. Treasury securities, its holdings was reported by department of treasury to be $1,174 billion as of May 2011
!??What is the impactThe impact is that China had gained an advantage from holding this huge number of treasury securities which is the ability to limit the appreciation of the RMB to the US dollars. How it could work ???!
• This could be achieved as china requires the Chinese exporters to pay in dollars in exchange for the RMB as they often are paid in dollar, so as a result the Chinese government now accumulates a significant amount of dollars which makes it control the price of the Yuan in the exchange rate market against the price of the US dollars and that’s how china keeps the devaluation of its currency.
Impact of undervaluing RMB• The undervalued RMB have resulted in limiting the level of U.S. exports to China.• Also Obama had warned that the economic relationship between the two countries had become “deeply imbalanced” in recent decades, with a yawning trade gap and huge Chinese holdings of U.S. government debt.
The impact of the Chinese currency devaluation on US economy
The US response to the Chinese currency policy as china is not allowing its currency to appreciatea lot of Americans are losing jobs especially in the manufacturing sector therefore the US Senate passed a bill that would allow for new tariffs on Chinese exports to the United States if China continues to undervalue its currency.
But china opposed what the US have claimed that China had manipulated the value of its currency, and the have said that the renminbi exchange rate is gradually achieving a more balanced and reasonable level.The US Senates move to force its trading partners currency to appreciate through the passing of law is in violation of international rules and the countrys obligations to the world.
So the debate is still ongoing between the US and china whether to remove the bill or not or take further actions by imposing sanctions on china , putting in considerations that this violates the WTO rules and this may lead to increase the hatred between the two countries, so no one knows where the debate will take the two countries.