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The United States and the PRC : Macroeconomic Imbalances and Economic Diplomacy

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  • Philip Levy

    (Asian Development Bank Institute (ADBI))

Abstract

This paper explores the ways in which macroeconomic imbalances have driven policy discussions between the United States (US) and People’s Republic of China (PRC) in the last decade. The PRC’s current account surplus, its growing foreign exchange reserves, and its shifting policies on exchange rate adjustment have become a central preoccupation of US trade policy. The paper considers the evolving political economy of the US policy stance and of the PRC’s response; it assesses the opportunity costs of an approach that has sometimes focused on the exchange rate to the exclusion of other issues; and it explores the ramifications for economic governance in the short- and medium-run. The paper finds that there has been ample mutual misunderstanding between the US and the PRC in their economic arguments; that the momentous debates have the potential to severely impair the institutions of global economic governance; and that there is likely to be an important race between economic and demographic forces that will naturally redress the imbalances and the political imperatives for each country to stand tough and fight.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 23208.

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Date of creation: Dec 2011
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Handle: RePEc:eab:macroe:23208

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Keywords: The United States and the PRC; Macroeconomic Imbalances; Economic Diplomacy; bilateral relations;

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References

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  1. William R. Cline & John Williamson, 2011. "Estimates of Fundamental Equilibrium Exchange Rates, May 2011," Policy Briefs PB11-5, Peterson Institute for International Economics.
  2. Qingyuan Du & Shang-Jin Wei, 2010. "A Sexually Unbalanced Model of Current Account Imbalances," NBER Working Papers 16000, National Bureau of Economic Research, Inc.
  3. Ray C. Fair, 2010. "Estimated Macroeconomic Effects of a Chinese Yuan Appreciation," Cowles Foundation Discussion Papers 1755, Cowles Foundation for Research in Economics, Yale University.
  4. Barry Eichengreen & Gisela Rua, 2011. "Exchange Rates and Global Rebalancing," Macroeconomics Working Papers 23258, East Asian Bureau of Economic Research.
  5. Thorbecke, Willem & Komoto, Ginalyn, 2010. "Investigating the Effect of Exchange Rate Changes on Transpacific Rebalancing," ADBI Working Papers 247, Asian Development Bank Institute.
  6. Yiping Huang & Kunyu Tao, 2011. "Causes of and Remedies for the People’s Republic of China’s External Imbalances : The Role of Factor Market Distortion," Macroeconomics Working Papers 23257, East Asian Bureau of Economic Research.
  7. María Jes�s Herrerias & Vicente Orts, 2010. "Is the Export-led Growth Hypothesis Enough to Account for China's Growth?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 34-51.
  8. Ray C Fair, 2010. "Estimated Macroeconomic Effects of a Chinese Yuan Appreciation," Business Economics, Palgrave Macmillan, vol. 45(4), pages 233-243, October.
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