That's the theory. Here's the problem, or three problems. First, if Americans keep buying the same stuff from China, because we can't get it cheaper anywhere else, imports will rise and our trade gap will stretch. Second, American companies won't come back to the U.S. if China's currency strengthens; they'll either stay in China and charge more for their products, or they'll find another cheap country to build their next factory. Third, Chinese price controls might be more important than the exchange rate. When the RMB appreciated 20 percent between 2005 and 2008, that actual price paid for a Chinese import went up only 2 percent, in part thanks to government controls and subsidies.
"We've made such a big deal about the exchange rate," said Barry Bosworth of the Brookings Institution, "but it's not the most important issue for the United States." That would be price controls, he said, like tariffs and buy-China rules that limit the market for U.S. goods and fleece U.S. companies for profits when we do secure contracts with Chinese companies.
WHAT CHINA SHOULD WANT
If the media overstates the United States' case for a stronger RMB, it might understate China's interest in a stronger currency. The country's currency game is having the nasty side-effect of raising prices for Chinese consumers.
Prices for Chinese goods are rising dramatically, up five percent over a year ago (and that official number might understate true inflation). Some background: the Chinese government unleashes RMBs to buy up foreign currencies flowing into China through trade surpluses and investment. This is a deliberate strategy to hold down the value of China's currency to make its exports more attractive, as the New York Times explains.
But by circulating lots of money into a hot economy, China is fanning the flames of inflation. For American buyers, inflation means higher prices, just like a stronger RMB. But for the Chinese, inflation is worse than currency appreciation. Inflation makes you feel poorer, whereas a stronger RMB would make the Chinese feel richer.
"Forget about U.S. interests. It's in China's interest to appreciate the currency," Bosworth said. It's also in the world's interests. A stronger RMB means a richer Chinese consumer -- a fatter wallet looking to spend in the international market. As other currencies rise in response to China, the United States and other trade-deficit countries might even see their imports in considerably higher demand.
WHAT THE U.S. SHOULD WANT
If a higher Chinese currency benefits the United States only indirectly, what should we root for in the China summit? According to David Leonhardt, the most important issue between the United States and China is intellectual property theft. Technology companies "continue to notice Chinese government agencies downloading software updates for programs they have never bought, at least not legally," Leonhardt wrote. "No wonder China has become the world's second-largest market for computer hardware sales -- but is only the eighth-largest for software sales."