When the world's most powerful countries show our wares to the world, China excels in selling consumer goods like microwaves and socks, and the United States excels in selling capital goods, like forklifts, and sophisticated technology like medicine. If less than 15 percent of our export products overlap, what does that mean for the pundits screaming at China to raise its currency?
It means that more expensive Chinese goods won't necessarily help U.S. exports -- but it might make Chinese imports more expensive for us. That's one reason why the RMB shouldn't be the top item on the agenda this week when Chinese President Hu Jintao visits Washington.
I recently did an analysis of the top American exports to our 20 leading foreign markets, and found little evidence that an undervalued Chinese currency hurts American exports to third countries. This is mostly because there is little head-to-head competition between America and China. In less than 15 percent of top export products -- for example, network routers and solar panels -- are American and Chinese corporations competing directly against one another. By and large, we are going after entirely different product markets; we market things like airplanes and pharmaceuticals while China sells electronics and textiles.
Read the full story (which is very good) at The New York Times.