A Proposed Strategy to Correct the Chinese Exchange Rate

China's currency remains substantially undervalued, importantly due to that country's massive intervention in the foreign exchange markets, and is a major cause of its large and growing trade surplus. Its "new exchange rate policy" announced in June 2010 has resulted in less than a 1 percent rise in the renminbi. During 2005-08 China let its exchange rate rise by 20 to 25 percent; the US goal should be to persuade it to permit a similar increase over the next two to three years. This appreciation would reduce China's global current account surplus by $350 billion to $500 billion and the US global current account deficit by $50 billion to $120 billion. Elimination of the Chinese misalignment would create about half a million US jobs, mainly in manufacturing and with above-average wages, over the next couple of years.