Matthew Yglesias says the Chinese goods tariff bill currently in Congress is a bad solution to the very real problem of the dollar’s value.
The issue is trade. Over the past 30 years, China has liberalized its economy substantially relative to the Mao-era baseline. That has vastly increased China’s productive capacity — up 7 percent to 10 percent per year each year. When Americans buy products that are produced in whole or in part in China, dollars are sent to China where they’re exchanged for Chinese currency, the renminbi, which is used to pay Chinese people. And when Chinese people buy stuff from America, they first need to buy dollars with which to pay us. For years, the tendency has been for Americans to buy more stuff from China than China buys from America. That means that on net dollars are being exchanged for renminbi.
