No time for scapegoating or retaliation
Last week in a procedural vote to move along a piece of legislation, the U.S. Senate voted by an overwhelming margin of 79 to 19 to establish a mechanism to retaliate against countries that consistently and intentionally undervalue their currencies. While the legislation may seem evenhanded in its treatment of every currency manipulator, it is squarely directed against the Chinese government which is, to the surprise of nobody, keeping the yuan undervalued so as to encourage both production and employment in their domestic export sector. Needless to say, if the yuan is undervalued, then the U.S. dollar is overvalued, and if the Chinese artificially expand their export activity, then the U.S. will see its export sector unfairly restrained.
