Top > Business > 2005 > July > 2005-07-23

Higher Yuan Will Raise U.S. Interest Rates

New Jersey consulting firm Business Restoration Partners, LLC, is nearing completion of a comprehensive forecast of the Chinese economy through 2015, and theyve been thinking about the yuan quite a bit over the last few weeks. International economist James A. McCune, Principal Consultant for Business Restoration Partners, suggests several good reasons why the rising yuan wont help U.S. manufacturers as much as government officials hope it will.

The most important reason, claims McCune, is that 70% plus of the goods America imports from China are re-exports, goods that have been mostly made somewhere else and then exported to China for final assembly, before China, in turn, exports them to the U.S. Just as surely as the revaluation of the yuan will make goods China exports to the U.S. more expensive, it will also make goods China imports cheaper. Hence Chinese businesses will, for the most part, have the flexibility to lower prices and maintain market share, if they choose to.

The bottom line, according to economist McCune: When higher U.S. interest rates are added to higher U.S. import prices and not much help on exports, for the reasons stated on our website, this whole revaluation thing seems a bit too much like smoke and mirrors, and not enough like a real positive for the U.S. economy.