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Kaminsky's Call: Politics at Play in Yuan Drama

The United States government has singled out the Yuan's exchange rate as a troublesome issue, demanding appreciation to help improve the Sino-U.S. bilateral trade imbalance. With the multiple domestic economic problems facing America, many are seeing this as a ploy to help resolve them through this medium.

Chinese Yuan
Don Carstens | Brand X Pictures | Getty Images
Chinese Yuan

On The Strategy Session yesterday, we were fortunate to have Steven Roach, Morgan Stanley's head of Asia, weigh in on the issue—he pulled no punches.

"The currency issue is a bogus issue," Roach stated plainly. "It's driven by politics."

Roach continued to lament what he feels is the real problem—lack of jobs.

The K-Call concurs. Appreciation of the Yuan is not the remedy for what ills us.

I spoke with a principal of a company that has been importing and distributing numerous consumer products for over sixty years, with presence in China since 1979. One of the original reasons the model worked originally, he argues, was that trading was aided by a fixed currency environment.

The next point frightened me. Should the Yuan appreciate, by say, 10 percent, who will end up paying this significant extra bit to giants like Target, Wal-Mart , and Costco as they in turn pay up to China? The American Consumer. How does this help our economy?

Another point made by this importer of Chinese products is that as the dollar depreciates, global commodity prices rise. China suppliers have already had to raise prices significantly to offset the increases, especially when one considers the Yuan is currently pegged to dollar.

Should the Yuan appreciate, the finished goods price increases will get compounded by the currency value changes.

Take this analysis along with Mr. Roach's and you have a very bleak assessment of the motive to influence China's Yuan to appreciate.

This will be important to monitor as the economy's condition could be further affected by price problems with this foolish currency game.

Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

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