The Most Useful Graph You'll See About 'Currency Wars'

By James Fallows

It's this one, from the "Geo-Graphics" feature on the Council on Foreign Relations site today:

2010.10.21.ChinaInternalAdjustment.jpg

What does it show? That when the Chinese government let the value of the RMB go up starting in 2005 (rising red line), two things happened. Chinese exports grew more slowly and in the depth of world recession actually went down (descending blue/black line), and Chinese household spending went up (rising green line).

Then, when the Chinese government froze the RMB's value again starting in 2008, both those trends stopped or reversed.

It really is amazing when real-world economic data turns out the way supply-demand charts would predict!

As a reminder, the point of urging/enticing/persuading the Chinese government to let the RMBĀ  go up again is not to move any specific factory from Xiamen to Sheboygan. It is to encourage exactly the two trends shown by the black and green lines: lower overall export surplus from China, and greater overall household spending within China. This chart suggests that it actually worked that way the last time around.

This article available online at:

http://www.theatlantic.com/international/archive/2010/10/the-most-useful-graph-youll-see-about-currency-wars/65102/