International Economics: China is the Course of the Current Global Unemployment - Essay Example

to 14.5 million people looking for work. But, is there really a connection between unemployment and a government policy? I believe there is, as this study shows several analyses and reports connecting unemployment to the monetary policy of China that led to a large trade imbalance and providing evidences that “China is the course of the current global unemployment”. I agree with the above statement and will present conclusive evidences to support this argument. First, China is described as an economic powerhouse in the region because of its large population, large resource bases and large markets.

It has the capability to stimulate economic progresses that will motivate business, trade, production and employment. China is considered as an emerging economy along with other countries such as Brazil, Russia, Indonesia and India. It has successfully restructured its economy from a centrally planned system to a market oriented one that is offering a wealth of opportunities in business and trade, transfer of technologies, and foreign direct investment. Today, CIA contends that China, in 2010 is the second largest economy in the world after U.S. and the world’s largest exporter. . Kruggman illustrated that Chinese authorities meet the “enforced target” by buying and selling their currency in the foreign market”.

In effect, Kruggman said that this policy becomes feasible because the Chinese restricted private investors to move their money in and out of the country. Since then, China acquired billions of US dollars at a time, with their RMB currency, thus making their currency cheaper and the US dollar more expensive in international currency markets. Because of cheaper currency, China is able to export its commodities at lower prices thereby hurting the exports of other countries. China’s target worked this way: China pegged the RMB value to the value of the dollar that runs counter to the “floating rate”.

So RMB (Chinese currency) pegged their currency in dollars, and when RMB appreciated in its real value because of hoarding in dollar reserves and massive trade surplus, the currency does not appreciate because it is controlled. For instance: 1 dollar = 10 RMB no matter what happens to supply and demand for the two currencies. Under this scheme, China is able to gain huge trade surplus while other countries run into budget troubles because of large trade deficits and difficulties with financing.

Thus, this scheme is doing more harm than good to other countries. An example of trade imbalance as stated by Chin Li is that in 2010, China exported $27 billion in goods to U.S. but has only imported $7 billion in return. Thus, in this scenario, analysts of WordPress believe “China is slowing the world’s economic recovery which has been estimated at 40 percent by its devaluation.” The effects of the China’s trade imbalance is felt not only the U.S. but also