The Political Game of the U.S. Currency Issue towards China

The currency issue towards China has become a heated topic on Capitol Hill in the U.S. during the last decade. Most researches focus on whether the RMB is overvalued in financial terms. For over two decades the explosive trade growth between the U.S. and China has brought deep social-economic impacts. To illustrate it, this paper uses various social-economic data across the states, and analyzes a typical currency bill towards China which was passed in 2010 by the White House. The empirical study shows that the socialeconomic factors play comprehensive roles in this political game. The local unemployment condition is relative to the voting result. If the unemployment rate in the home-state increases by 1 percent, the representing congressman would vote yes to the currency bill against China with a higher probability of 2.3 percent. Also a congressman from a state with a manufacturing advantage is more likely to support the aggressive currency bill towards China. Finally, the interest group and partisan ideology also influence congressman policy decisions. Political contribution from commercial sectors increases the probability of voting yes on the currency bill against China This paper links the social-economic impacts in a trade-linked world with policy-making impacts, and sheds light on understanding the complexity of trade policy.