No, it appears to be much more complicated then that, although that is what I would have also assumed? As I said, I did take one course each in micro- and macroeconimics, and even have an MBA, but I admit that the complexity of the subject did baffle me some what.
Almost everyone in the United States and the world highly respects the Federal Reserve's Chairman Alan Greenspan for his brilliant economic policy decisions over the decades - and so do I! But listen to what he has to say about this. Personally, I really don't understand it. Intuitively, you'd think that if the value of the yuan increased, then it would cost more for the U.S. to buy their products, and this then would stimulate the U.S. economy by forcing retailers to buy more cheaper American-made products, and decrease unemployment in the process:
"Some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi (RMB) relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion.
The enhanced integration of China into the world trading system is having a notable effect on Asia's trade with the rest of the world and on trade within Asia. After having risen rapidly through the 1990s, U.S. imports from Asia excluding China have flattened since 2000. This has occurred as production within Asia has evolved, with the final stages of assembly and exporting to the United States and elsewhere becoming increasingly concentrated in China. As a consequence, because exports by country are recorded on a gross basis rather than as value added, the widening of the United States' bilateral trade deficit with China, measured gross, has largely been in lieu of wider deficits with other Asian economies, including Japan. Measured by value added, our bilateral deficits with China would have been far less, and our bilateral deficits with other Asian exporters would have been far more.
Accordingly, an increase in the exchange rate of the RMB, relative to the dollar, would likely redirect trade within Asia, reversing to some extent the patterns that have emerged during the past half decade. However, a revaluation of the RMB would have limited consequences for overall U.S. imports as well as for U.S. exports that compete with Chinese products in third markets. Such a revaluation would affect Chinese value added but not the dollar cost of intermediate goods imported into China from the rest of Asia, which represents a significant share of the gross value of Chinese exports to the United States and elsewhere. (To the extent that exporters to China revalued as well, of course, the impact on overall Asian exports would be somewhat greater.)
The broad tariff on Chinese goods that has recently been proposed, should it be implemented, would significantly lower U.S. imports from China but would comparably raise U.S. imports from other low-cost sources of supply. At only slightly higher prices than prevail at present, U.S. imports of textiles, light manufactures, assembled computers, toys, and similar products would in part shift from China as the final assembler to other emerging-market economies in Asia and, perhaps, in Latin America as well. Few, if any, American jobs would be protected."
Source: "Testimony of Chairman Alan Greenspan," The Federal Reserve Board China
Committee on Finance, U.S. Senate, June 23, 2005.
http://www.federalreserve.gov/boarddocs/testimony/2005/20050623/default.htm
I think the key to understanding this is his final remark: "U.S. imports of textiles, light manufactures, assembled computers, toys, and similar products would in part shift from China as the final assembler to other emerging-market economies in Asia and, perhaps, in Latin America."
Also worth mentioning is the following: a current Chinese policy that is clearly beneficial to the U.S!:
"Greenspan and Snow, clearly worried that spiraling U.S. deficits are driving Congress toward trade action against China, sought to soften the angry mood by pointing out the possible consequences should the U.S. retaliate. Greenspan warned lawmakers that moves to limit China's involvement in the U.S. economy with tariffs could end up backfiring. A U.S. policy of protectionism, he said, would threaten the growth in worldwide living standards since the end of World War II. He noted too that moves by China toward a more market-driven economy have benefited the world, and the United States in particular. "My basic concern," said Greenspan, "is that, if we are forced to implement a very significant unilateral tariff, the dangers to the overall international financial system, in my judgment, are very large."
Also worth noting: China has become a big buyer of U.S. Treasury securities in recent years, which in turn has helped the U.S. keep interest rates low and fund its ballooning trade and budget deficits."
Source: "Beware of (fixing) the China problem: Anger over China's trade policies nears a boil. Greenspan warns against protectionist backlash," by Krysten Crawford, CNN/ Money staff writer, June 24, 2005.
http://money.cnn.com/2005/06/23/news/economy/greenspan_china/
I see the point here. They adjust their exchange rates to be inline with the rest of the world and it offsets China's internal balance and just shifts American retailers to buy from other cheaper sources like in Latin America.
"To maintain its currency controls, China has to buy large quantities of US dollars - an arrangement that Greenspan said "cannot go on indefinitely."
http://www.taipeitimes.com/News/front/archives/2005/06/08/2003258397
"Beijing's policy of fixing the value of the yuan at 8.3 per U.S. dollar. Critics contend that it gives Chinese companies an unfair advantage in international markets by keeping the yuan's value artificially low, making it almost impossible for many U.S. manufacturers to compete. The Schumer-Graham bill, which drew the support of 67 senators on a procedural vote in April, would impose duties of 27.5 percent on Chinese goods unless Beijing allows the yuan to rise significantly. The prospect of such stiff duties on Chinese imports has aroused fears of a transpacific trade war, with both Greenspan and Snow imploring Congress that persuasion is more likely than threats to induce concessions from Beijing. Schumer and Graham said that while they would be pleased with a peaceful resolution, their bill had helped force movement by the Chinese. "The 67 votes was a great signal to the Chinese, to the administration, and to the international community," Graham said. Chinese officials have long said they want to have a more flexible currency but don't want to act too soon, lest they destabilize the nation's financial system. Schumer and Graham did not suggest that Snow and Greenspan made promises about the size or timing of such a step, but Schumer said, "What we've always said is that it has to be significant . . . and Secretary Snow and Chairman Greenspan have indicated that that is very much in the cards."
http://www.washingtonpost.com/wp-dyn/content/article/2005/06/30/AR2005063001832.html
Finally, as posted above, "China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds." Depending on the countries that they most often trade with, this is probably where there new investment in foreign currency will go:
"According to the Bank of NY, there are 10 currencies that make up almost 90% of China’s overseas trade: the U.S., Japan, Hong Kong, EU, Indonesia, Malaysia, Singapore, South Korea, Thailand and Taiwan:
China’s top ten trade partners (in Dollars):
The European Union (18.5%)
Japan (18%)
United States (17.5%)
Hong Kong (11%)
ASEAN nations (11%)
South Korea (9.5%)
Taiwan (8.5%)
Russia (2%)
Australia (2%)
Canada (1.5%).
http://bigpicture.typepad.com/comments/2005/07/federal_reserve.html
Economically, in the short-run, this does not look good for the United States. However, the U.S. seems to be the world leader in advanced technology, and the scientific development of new technologies - if sustained - should give us an edge of competition to contend with worldwide. We will still continue to have an edge in providing China with the necessary expertise in both the scientific, manufacturing, management, and service sector that they need to deal with their internal massive internal problems. In addition to this, we try - although not always very successful, a.k.a. Iraq and Afghanistan - to be a "political" role model leader in the world.
This is important because of China's rising instability amongst the peasants: last year there were about 50,000 riots in China, this year their were over 80,000. There will be no war, but economically there is no doubt that they will rise.
) I think if you want to forment revolution in China, you should communicate, between lots of typed moans and groans, verbal kiss exchanges, etc. with coded phrases, to fool the over-burdend censors trying to monitor IMs.)