It’s bogus, say recent studies.By Peter A. Buxbaum, AJOTIn the wake of the downgrade by Standard & Poor’s of United States Treasury securities, the government of China, through Xinhua, its official news agency, found it necessary to scold Uncle Sam over his spending habits. “China, the largest creditor of the world’s sole superpower,” Xinhua said, “has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.” But, of course, the U.S. also has long had a bone to pick with China over currency issues. The Chinese government has maintained a policy since 1994 of intervening in currency markets to limit the appreciation of its currency, the renminbi (RMB), against the U.S. dollar. Critics have charged that this policy has made Chinese exports cheaper, and U.S. exports to China more expensive than under free market conditions. Politicians, in particular, have picked up this mantle, arguing that the large annual U.S. trade deficits with China has lead to the widespread loss of U.S. manufacturing jobs, and, conversely, that the reform of China’s currency policies, would lead to higher levels of U.S. exports, and the creation of jobs at home. “The RMB is blamed for the record-high U.S. unemployment rate, depressed wages, struggling exports, and declining economic performance,” said Andrew Leung, a Hong Kong-based trade consultant. But do these arguments actually hold water? Two recent studies, from Yale University and the International Monetary Fund, cast doubt on the veracity of these contentions. There are several aspects to the rebuttal of the blame-the-RMB arguments. First, the U.S.-China balance of trade does not work like a seesaw, in which one side goes up when the other goes down. Rather, it is a more complex picture, in which, for example, China could opt to source products from other markets, including domestically, in the event of an appreciation of the RMB. Second, a reduction in imports from China would have a net negative effect on U.S. economic activity and jobs. Third, the trade imbalance results not only from artificial currency exchange levels but also from low consumption rates and high savings rates among Chinese consumers. And, finally, China has in fact allowed the RMB to appreciate in the last several years, without any resulting change in the U.S.-China trade balance. A recent report from the Congressional Research Service outlines the basic argument usually heard from politicians and policymakers. “When exchange rate policy causes the RMB to be less expensive than it would be if it were determined by supply and demand, it causes Chinese exports to be relatively inexpensive and U.S. exports to China to be relatively expensive,” said the report. “As a result, U.S. exports and the production of U.S. goods and services that compete with Chinese imports fall, in the short run. A market-based exchange rate could boost U.S. exports and provide some relief to U.S. firms that directly compete with Chinese firms.” C. Fred Bergsten, an economist with the Peterson Institute for International Economics, writing in a Foreign Policy magazine, argued that a realignment of the RMB versus the dollar could create hundreds of thousands of manufacturing jobs. “If China eliminated its currency misalignment and thus cut its global surplus to 3 to 4 percent of its GDP,” he wrote, “that would reduce the US global current account deficit $100 billion to $150 billion. Every $1 billion of exports supports about 6,000 to 8,000 (mainly high-paying manufacturing) jobs in the United States. Hence, such a trade correction would generate an additional 600,000 to 1.2 million jobs.” China’s response to these arguments, according to Leung, is that RMB reform would “unlikely help exports and jobs as cheap goods from other emerging markets are a handy substitute.” “The RMB has already appreciated 55% since 1994,” he added, “but that appreciation didn’t help U.S. exports or reduce U.S. imports. Net exports are