WASHINGTON, Dec. 11 (UPI) -- Floating the Chinese currency will not lead to more U.S. jobs, nor is China's trade imbalance with the United States unacceptably skewed, Federal Reserve chairman Alan Greenspan cautioned Thursday.
His wariness of the Chinese central bank floating the yuan at all costs contradicts the position of some senior administration officials which has called for the currency to be traded freely on the foreign exchange market as soon as possible. Some economists argue that the yuan is undervalued against the U.S. dollar by as much as 40 percent, giving an unfair advantage to Chinese manufacturers who can take advantage of the weak currency as it makes their products cheaper, and thus more competitive, in overseas markets. The yuan has been pegged to the greenback since 1995, and many policymakers and voters alike have argued that it was the artificially low value of the yuan that was leading to the exodus of U.S. jobs to China.
In his speech on globalization to the World Affairs Council in Dallas, however, Greenspan said that even if the Chinese were to float their currency, it "would be unlikely to have much, if any, effect on aggregate employment in the United States."
A stronger Chinese currency could lead to more U.S. exports going to China, but Greenspan questioned whether that would reduce imports of textiles by the United States.
"Far more likely is that our imports from other low-wage countries would replace Chinese textiles," he said.
Moreover, the Fed chairman warned that "a misaligned Chinese currency, if that is indeed the case, could have adverse effects on the global financial market and, hence, indirectly on U.S. output and jobs."
Rather, Greenspan pointed out the need for China to continue growing economically and be an integral part of the global markets. As such, while he acknowledged the trade frictions occurring between China and the world in recent years, Greenspan said they were merely "subplots in a much larger debate about the benefits and costs of expanding globalization."
During Chinese Premier Wen Jiabao's visit to the United States which concluded Wednesday, the White House had hoped to bring up the issue of the ballooning trade imbalance between the two countries, as the U.S. trade deficit with China reached an all-time high of $12.7 billion in September. Nevertheless, China's imports from the global market rose 41 percent to $229 billion, whilst its exports increased by 32 percent from last year to $308 billion. Indeed, the world's fastest-growing nation's import needs have come to exceed that of Japan, and the Chinese market has become the driving force in bolstering growth across Asia.
Wen told U.S. business executives that it was inadvisable to politicize economic and trade issues, and emphasized instead the win-win situation of China's expanding economy.
There were no public discussions of China's trade relations with the United States, nor were any public comments made about the possibility of floating the yuan during Wen's visit.
