Maybe i should have been more specific, but China holds $2.65 trillion in what are called foreign currency reserves, which is a result of retaining currency from many years of trade surpluses. The savings rate has little if anything to do with these reserves.
Since the appreciation of the Yen vs. Dollar (1990-2009), the U.S. current account deficit with Japan, as a percentage of GDP, has fallen from 0.7% of GDP to 0.3% of GDP.
Simple research will eliminate these type of errors.
The bold is dependent on gains in real wages, which are a function of worker productivity. Diminishing the value of the RYB does not allow the Chinese worker to realize gains in productivity necessary for the economy to adjust.
Japan and Germany have seen their trade surpluses as a % of GDP fall as their currencies have appreciated vs. the $. Germany's trade surplus for example has fallen from close to 0.4% of U.S. GDP (2005) to 0.19% of U.S. GDP (2009). During this period (2005-2009), the EUR has appreciated over 30%.
Biased assumptions do not coincide with the numbers. For example, U.S. exports as a % of GDP have increased from 0.16% in 1998 to 0.447% in 2007 (an increase of 179%) even as China has watched its exports to the U.S. as a % of U.S. GDP increase from 0.647% in 1998 to 1.83% in 2007 (an increase of 183%). Similar gains as China maintains a pegged currency: coincidence?
What does a stronger RYB do to the purchasing power of Chinese consumers?
This statement does not support your argument as it contradicts the numerical evidence. Trade deficits as a % of U.S. GDP decline as foreign currencies appreciate. The entire basis behind valuation gains (increasing productivity) is undermined by your argument; as the Chinese become more productive, their currency should appreciate in value.
As exports diminish, the internal economy (specifically the service sector) will become more and more capable of picking up the slack as a result of increased purchasing power.
If they had a free floating currency, it would appreciate as the economy witnesses gains in productivity. Further gains in productivity have a positive affect on foreign direct investment as greater buying power opens their consumer market. Companies will be licking their chops in anticipation of gaining access to a market with a middle class that i larger than the entire U.S. population.
While this is certainly the case, it does not justify currency manipulation (which is harmful or the citizens located in the more developed coastal regions).
What do the numbers say?
This is too much! You are making the claim that the U.S. should first focus on increasing domestic competitiveness when their largest trade partner has engaged in currency manipulation for more than two decades, and then you have the audacity to label the U.S. a currency manipulator in the process. A more productive China naturally results in a weaker RYB on the basis of fundamentals alone. I have little doubt that China is becoming more productive/competitive. What i am arguing is that their currency should reflect these gains.
Research the balance of trade accounts before you make baseless statements that contradict the data.