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NEW YORK: The decision by Beijing to allow the yuan to appreciate against the dollar and other currencies has been welcomed in the West.
It is what Washington and Wall Street wanted. But what does Beijing's move mean for the US economy?
China's purchasing power will rise. Commodities priced in US dollar will become cheaper for China. So oil, coal and aluminium will become cheaper for China to import. This will help big US multi-national producers.
David Wyss, chief economist at Standard & Poor's, said: ".....commodity producers like Alcoa...they are looking at big exports into China for commodity-type products and big increases in exports and prices in commodity products. So, that's the good news.
"For most of the rest of the market, it is not such a big deal - we are not going to be exporting huge amounts of goods into China."
But of course there is a flip side.
Cheaper labour and production costs in the past have meant US consumers enjoyed lower prices for China-made goods.
As the yuan appreciates, prices are set to increase for goods ranging from computers to clothing, but that might actually benefit the US too.
David Wyss said: "Costs will go up and we will be seeing production moving back into the US, partially as a result of that, partially also because of higher transport costs. So that is good news for jobs and right now in the US we need jobs more than we need low prices."
Much has been made of the timing of the yuan announcement ahead of the G8 and G20 meetings and the lack of detail on how much it will be allowed to appreciate and fluctuate has yet to be announced.
But even groups which have been pressuring Washington and Beijing said that if this is a step away from an export-dominated economic policy, then it is a step in the right direction.
Charles Blum from the Fair Currency Coalition said: "When China becomes a large economy that is driven more by domestic consumption growth than by export growth, then it really becomes an engine for global growth and I think that is something that the whole G20 would welcome."
China's decision to let the yuan appreciate is not a one-way street. Now that Beijing has given in a little to the West, it will expect the West and Japan to tackle their big deficits.
- CNA/ir
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