U.S.-China Exchange Rate Negotiation: Stakeholders' Participation and Strategy Deployment

Abstract

Exchange rates influence a country's trading capability, foreign reserves and competitiveness. Recently, the exchange rate between the Chinese RMB and the U.S. dollar has been a contentious issue in both the United States and China. In this paper, we conduct a historical review of how the United States deployed negotiation strategies with China on the exchange rate issue and consider the degree to which it follows theoretical expectations. We then analyze the changing nature of the factors which shape exchange rate negotiations between the two nations in projecting alternative scenarios for the future of conflict resolution between the U.S. and China on this issue. We predict that the U.S. is likely to continue alternating between competition and collaboration, a negotiation cycle influenced by U.S. domestic politics, and China is less likely to continue with accommodation and compromise. The sequencing and timing of each nation's negotiation strategy will lead to widely divergent consequences for the management of exchange rates and the world economy.