Dodson - Chapter 8

In chapter 8 of China Inside Out, Dodson explains that up until 2005, the Chinese Yuan (currency) had a fixed relation to the U.S. dollar. However, since then the U.S. dollar has increased in value, but the Yuan has stayed the same. My understanding of the system after that, is that the United States, and other countries, are able to buy goods at a very low price (which now makes sense because, as I have always seen, most goods in the U.S. are marked “Made in China”). There is also a measure called Purchasing Power Parity that compares the prices of goods in a “standard country” with the price of a different country (pg. 161). What I did not understand at first is why America pushed to have China trade with the Yuan at its real value. Dodson later explains that America “will be able to compete more effectively with China in terms of production costs” (pg. 162). This still does not make very much sense to me (I have little understanding of economics, so maybe there is something I am missing), but it seems like the U.S. simply wants to have the option to sell to a wider range of countries. I also did not realize that the undervaluing or overvaluing of the Yuan was in China’s control? Because the Yuan is so undervalued, I would think most countries would want to trade with China as opposed to the U.S. This seems to pose an international problem because, I am assuming, most countries prefer to trade with China, as goods will cost less. However, I wonder if countries other than the U.S. would prefer that the Yuan is at its real value. There seem to be many ups and downs to having the Yuan be so undervalued. I originally thought that it was a good thing, but the rest of chapter 8 gave me a very different perspective.