This is the Cato Daily Podcast for Wednesday, March 24th, 2010.

I'm Caleb Brown.

The Chinese currency issue roaring back to life with a vengeance, once again threatening

US and China relations and the global

trading system. Dan Eekinson, Associate Director of the Center for Trade Policy

Studies at the Cato Institute, says that currency revaluation for many

policy makers is just a proxy for reducing the trade deficit to zero or turning it into a surplus.

Iconson's new analysis is appreciate this.

Chinese currency rise will have a negligible effect on the trade deficit.

There are a couple things at play here.

The currency issue has been a hot button trade issue for several years now. The Chinese currency is likely undervalued, but Congress

doesn't care about the value of the Chinese Renminbi. It cares about the fact that we have a large bilateral trade deficit with China.

So Congress thinks that currency adjustment is the key to getting our trade balance, to achieving trade balance.

First of all, I don't think trade balance should be an objective of policy at all,

particularly bilateral trade accounting. It's really a fiction in this

globalized world because our imports from China aren't really Chinese

value. They're their value of many countries including the United States because China is a final assembly

point for production.

But Congress seems adamant about this notion that if the Renminbi were to appreciate by say 25% that

we would have a major adjustment in our trade account with China. I don't see why

they believe that. We had a period in which the Renminby appreciated by 21% between

July 2005 and July 2008 and during that period our trade deficit increased

...