Source: Bloomberg News

Yukon Huang discussed the possible reevaluation of the yuan and other East Asian trade dynamics with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart."

The Rise of Processing Trade in East Asia

Trade flows in East Asia have changed dramatically over the past 20 years. Yukon Huang explained that while East Asian economies used to produce an export good from start to finish within one country, countries are now producing components that are then shipped to China and assembled for export. As a result, Huang noted, “the U.S.-China trade imbalance is really a U.S. deficit with all of East Asia and not just China.” Any attempts at currency reform thus would need to adopt a multilateral approach.

Low-tech and High-tech Chinese Exports

According to Huang, China’s exports are comprised of both low-technology and high-technology goods, but 80 to 90 percent of the components in China’s high-tech exports are produced elsewhere. Thus, many of China’s export jobs are in labor-intensive production and product assembly. If the renminbi were to rise in value, such jobs would likely migrate to South Asia or Latin America rather than back to the United States.

RMB Revaluation Could Hurt the West

If China’s currency is forced to revalue by 20 to 25 percent, Huang explained that China is likely to adjust to maintain the competitiveness of its exports in two ways. First, it will shift production of low-technology goods to its inner provinces where wages are lower. Secondly, it will redirect investment toward high-technology exports, which will actually increase competition with companies in the United States and Europe. In these ways, Huang argued, RMB revaluation could actually hurt the West.