There is a lot of discussion in Congress, the domestic Press and the international Press about the Chinese RMB (yuan) appreciation against the dollar and other world currencies.  China is being pressured to take action by the US Government, WTO and IMF. 

But Chinese Prime Minister  Wen Jiabao  and others in the Chinese government are fighting back.  If the RMB is re-valued, they say, it will cause full scale recession in China.  In America and other Western importing countries, it would cause an automatic rise in prices for imported Chinese goods by 5-15%.  If China goes into recession, the whole world will suffer.  The cost of goods to American consumers would increase, theoretically causing us to buy less, thus ordering less from China…and so on.  It’s a vicious cycle that hurts both US consumers and the Chinese economy.  There’s a new world financial order and China can tip the delicate balance if the RMB suddenly increases in value.

But our American politicians on both sides of the aisle argue that millions of jobs will return to the US because it will no longer be cheaper to manufacture in China.  HA!  No way!

Consider the lowly industrial spring.  As I discussed in my recent interview on NPR Morning Edition http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=130258250&m=130260491  even if the price of Chinese-made goods increases by 5% or 10% or 20%, it is still much cheaper to produce goods in China.  The biggest effect will be increases in costs to low-end US consumers.  Consider Wal-Mart.  When low-end goods increase in cost, the Wal-Mart shopper, (probably the least able to afford an increase) gets the brunt of the increased price.  It will cause low-income American citizens to suffer…and it will put low-paid Chinese factory workers out of their jobs as demand decreases.

The same is true if the US Government slaps import tariff increases on Chinese goods.  The effect will be shoved off onto consumers who must now buy the same goods at higher prices.  Again, not a brilliant idea with so many people struggling in this economy.

This is a serious no-win strategy.  I agree the RMB should be re-valued gently over time to create a more level global playing field.  But making revaluation happen rapidly will cause big, ugly repercussions.