China's central bank announced Saturday it is prepared to allow the country's currency to float more freely against other currencies, which could raise the cost of Chinese goods. But just what this will mean to the U.S. economy will depend on how much the currency is allowed to rise. If it increases by 20%, Economist Fred Bergsten says as much as $150 billion could be cut from the U.S. trade deficit with China and create one million jobs by making American exports more competitive. Few economists believe the yuan will rise that much now, but Bergsten says any step is a step in the right direction.
Senator Chuck Grassley, R-Iowa, has had serious concerns about China's economic and trade policies saying earlier this month that China is manipulating the value of its currency in order to gain an unfair advantage in international trade. Grassley suggested rethinking the United State's overall approach to China on trade matters. He says the agricultural industry depends on its ability to export goods to China and China's manipulation of its currency hurts agriculture since one out of every three acres of American farms is planted for export.
No details were given as to when or how much China would allow its currency to appreciate. The timing of the announcement just before a G-20 meeting in Toronto has been questioned by critics. China has sent signals about a currency appreciation before, most recently in April, and usually ahead of an international meeting or deadline but has then done nothing.
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