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Political Pressure

The political debates in US are heating up over the rising menace of the Chinese dragon. Outsourcing and steady stream of job losses in past years have increased the pressure on the policy makers to act.

Increased Export

With the increasing Yuan, the US export to China would become more affordable to Chinese consumer, and hence, will get a boost.

Disadvantages

Rise in Interest Rate

With dollar becoming weaker, FDI flows in China will decrease leading to decrease in Chinese Central bank investment in US Treasury Bill. The current trend of reverse diversification, where central banks across the globe are widening their investing by divesting in dollars investment and investing in other currencies, as china move towards pegging the RMB to a basket of currencies, there will be a notable impact on Euro. China is world's third largest investor in US Treasury Bill. This revaluation will force Chinese policy maker to sell their holding in US Treasury Bill and buy in Euro and Yen. This will ultimately decrease the demand for federal T-Bill and interest rate will rise. The falling dollar and increasing interest rate will not only hurt US but also impact Asian countries such as Japan, China, India and to an extent Russia as well. Therefore, these countries will also try to play diplomatically and diversifying their investment back stage.

Short-term Inflation

In short run, Chinese products will be available at low price. Given the high spending habits of US consumer, it will definitely increase the inflation atleast in short run.

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* Contributed by -
Jyoti Singh,
PGDBM 2006,
IMT, Ghaziabad.