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Hyperinflation led to Hitler and Mao. What will China's currency manipulation lead to?

China's currency manipulation aggravates US politicians, but it could also upend its own economic gains. By keeping the yuan artificially low, China increases inflation to dire levels. Instead of whining about the policy, the US must emphasize this dangerous tradeoff to China.

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The US Treasury Department’s recent report downgraded the Chinese yuan from simply “undervalued” to “substantially undervalued.” This was predictably met by renewed claims from Senators Charles Schumer (D) of New York and Max Baucus (D) of Montana that China is manipulating its currency, and there is surely much more of that kind of rhetoric on the way from them and others. It’s always politically useful to have a boogeyman ahead of elections, and with the 2012 electoral campaigns apparently underway, China is the undeniable boogeyman du jour.

But this is no time for indignation, righteous or otherwise. Far more effective would be to emphasize to China that its currency policy presents a challenge that, if unchecked, could well upend its own tremendous economic gains. In other words, China could be shooting itself in the foot.

ANOTHER VIEW: Currency manipulator accusations against China unbalanced


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