China-United States Economic Relations, with Focus on Currency Convertibility

Abstract

This thesis provides an alternative view of the United States-China relationship through the lens of trade liberalization and economic co-dependency, with a focus on convertibility of Chinese currency. Does the Renminbi (RMB) threaten the global status of the US Dollar (USD)? I address the question by providing a cost-and-benefit analysis of a RMB liberalization exercise. Based on historical evidence, some scholars argue that the United States and China are entering a period of conflict (see, for example, Allison, 2017). From the trade war that began in 2017, and the dispute over semiconductors, to the tech war, and current financial Cold War between the United States and China (Fok, 2020), American leaders seem willing to confront China on multiple fronts. However, as a controlled currency, the RMB provides a level of protection for China. At the same time, while some observers view China as an autarky that is aiming to become self-sufficient and economically independent, the average US consumer still depends on complex supply chains that originate in China, providing affordable goods. Nike shoes and iPhones, for example, are considered necessities for many Americans. Is a fully convertible RMB harmful or beneficial to American consumers and working-class citizens? Could the convertibility of the RMB create more financial benefits to American workers, reshape geopolitics locally, and change the course of history? These questions are the subject of this thesis. Chinese capitalism is ambidextrous in that it simultaneously operates two conflicting models: government control, and entrepreneurialism. This presents significant challenges to the US government. Keyu Jin’s The New China Playbook—Beyond Socialism and Capitalism (Jin, 2023) highlights how economic decentralization and political centralization occur simultaneously under the CCP. Building on The China Paradox (Clifford, 2021), my research provides fresh perspectives on the complex integration of the Chinese Communist Party’s (CCP) autocracy with entrepreneurial renewal. This research is based on an extensive review of existing literature on the subject, as well one-on-one interviews with 21 leading executives, academics, senior finance professionals, and cabinet-level government officials. The research integrates microhistory with Harvard Business School-style case studies. I selected a group of individuals to interview, and asked them to share their policy views on capital-market reform and the full convertibility of the RMB in the context of US-China conflicts. In addition, I made use of 34 HBS-style case studies and collected sample data from 32 American companies. Using the data from the interviews and case studies, I calculated a “Benefit Score” for working-class employees in each company. The Benefit Score for each American company is calculated based on seven factors: 1) revenue, 2) number of employees, 3) pay multiple, 4) employee salary, 5) company tax, 6) US locations and 7) weakening RMB. I conclude that a fully convertible RMB is indeed beneficial to working-class Americans.