An Undervalued Yuan?

I read Greg Mankiw's article on the question of an undervalued Yuan a year ago and it sure still is very applicable today. I paraphrased that article this way:

I believe there is more to the Chinese Yuan problem than we are currently being made to see as a grave thing. I don't deny though that if it were the case, that an undervalued Yuan would be undesirable in light of fair competition in the global markets. Might things be a little exaggerated though?

Firstly, I believe in free trade like most other modern economists would, but what is seeming to be suggested as possible solution to this undervaluation problem can only be called protectionism. The US, in particular, might, for genuine reasons, fear that having to compete with highly efficient Chinese producers, might put some of their industries out of the radar. Good examples would probably be the clothes industry and car industry. The US therefore might like to disguise its protectionism motive behind this active campaigning against an undervalued Yuan. Do we really want to go this far to limit free trade?

Financial supervision in the US has recently undergone huge tests and some even believe that it failed to prevent an economic downturn that proved very far-reaching. Is a correctly valued Yuan more necessary than careful financial supervision? I tend to believe efforts should be more deliberate towards streamlining financial institutions in the US.

Given the argument for free trade, I think it is fair to ask this question as well, does undervaluation really hurt the American consumer. After all, clothes and cars produced in China are cheaper than those produced in America so assuming there was free flow of the clothes and cars, wouldn't American consumers be better off? I am sure we all prefer to pay less for what we buy.

China also holds vast amounts of US securities so what message would this campaigning send? The US no longer requires Chinese debt? I tend to think this is far from what the US desires especially at this time.

Does America really want to isolate themselves by "confronting" China as some suggest? I clearly don't think this is the way to go. A year ago President Obama said this would be a problem he was going to make sure he handles but I am yet to see major steps by his administration in this regard besides a Chinese tires tariff. The tariff imposed in September 2009 only serves to stress the "protectionism" stand that undermines free trade principles.