US TRADE POLICY WITH CHINA

To:              The United States International Trade Commission Chairman Ms. Deanna 

                   T. Okun 

From:            Athinarayanan Sanjeevraja

Date:            October 31, 2011

RE:               US Trade Policy with China  

Suggestion:  Remove the huge gap between the real and nominal exchange rate, selling American Products is a top priority and not to increase tax on multinational companies in U.S.

Good Morning Chairman. When I tune into BBC world, it reported that U.S. trade policy with China. In my view, tension between China and the United States are usually focused on the core issue of currency. PBOC kept the Yuan quite low for a long period of time while they are accumulating vast hoards of foreign exchange. It is approaching $3 trillion.  China refuses to let its currency appreciate faster even in the face of U.S. pressure because China is export–led growth model. China argued that policy constitutes a de facto subsidy for Chinese export to U.S. and act as a de facto tariff on Chinese imported U.S. goods. The tariffs on Chinese goods would encourage substitution of imports to countries with floating currencies and open capital accounts. This would eventually rebound   towards increased demand for their products which would boost growth and reduce the need for government transfer payments. Thereby it is shrinking the budget deficit. Moreover Chinese goods are cheaper than other products of the same type and Chinese are less likely to buy from abroad. It is not just China, most of the countries including Brazil, India and even others as a mercantilist policy that is all pro exports, restricting imports. Recently officials from the Federal Chairman Ben Bernanke, Treasury Secretary Timothy Geithner and members of congress are all pressing for a big devaluation of against the Yuan to boost U.S. exports. I won’t recommend for an undervalued rate because it will significantly raise the cost of many items everything from energy to consumer goods and cut the real incomes for the households. But U.S. will be avoiding any general rise of the dollar.

The massive U.S. trade deficit with China has become a political and economic issue. In my view, the competitive exchange rate is not sufficient to produce a sustainable trade balance. To be sure, U.S. always have huge gap between the real and nominal exchange rate to promote trade and investment. Indeed, U.S-China bilateral deficit partly reflects an undervaluation of an Yuan and an overvaluation of dollar which cannot be corrected through the exchange rate.

Let me conclude it, the Obama Administration policy goal should be import less from China and selling American products is a top priority at the highest level of the U.S. governments. In addition, Obama Administration should abandon its increases taxes on foreign companies because their investments clearly increase U.S. exports.

Thank you very much for your attention.

I am Athinarayanan Sanjeevraja with great respect.