Posted by: mulrickillion | October 12, 2011

US Risks Trade War with China

Hong Kong Trader, 6 Oct 2011 —

There’s no mistaking how seriously opposed China is to a US Senate bill that will likely go to a vote on Thursday (US time).

In a coordinated response, the Chinese central bank and the ministries of commerce and foreign affairs accused Washington of "politicizing" global currency issues, according to MSNBC, saying the bill’s passage could lead to a trade war.

At issue is the Currency Exchange Rate Oversight Reform Act of 2011 which aims to crack down on China’s alleged currency manipulation.

"It is very rare for three different ministries of the country to refute something so strongly, showing how deeply the Chinese government is concerned about the yuan bill," Wang Zihong, a researcher at the China Academy of Social Sciences, told Reuters.

The bill is expected to pass easily, and move on to the House of Representatives. That said, Speaker of the House John Boehner has the power to prevent debate in his chamber, telling reporters that the Senate bill to force the yuan to rise against the dollar is "beyond" what Congress should be doing, adding it would be “pretty dangerous”.

A number of op-eds agree. Selected excerpts:

New York Times ("The Wrong Way to Deal With China")—China is undeniably manipulating its currency. Countries around the world, including the United States, are losing jobs because their manufacturing industries cannot compete with artificially cheap Chinese goods. For the good of the world economy, and its own long-term economic development, China should stop.

Still, a Senate bill, with strong bipartisan support, to punish countries that manipulate their currencies is a bad idea. It could do even more damage to the American economy if — as is all too likely — China decides to retaliate.

Washington Post ("Trade trauma")—Good news: Senate Republicans and Democrats have agreed on legislation. Bad news: It is a counterproductive bill that purports to crack down on China’s alleged currency manipulation, all in the name of creating jobs for Americans.

But would it really create hundreds of thousands of jobs in the United States, as the bill’s advocates suggest? The verdict from an April briefing paper from the Federal Reserve Bank of St. Louis is: “probably not to any meaningful degree”.

Christian Science Monitor ("The irony of China bashing")—For the past few months, only one currency apart from the yen, has appreciated in value against the US dollar. That currency is of course the Chinese yuan. By contrast, the currencies of several other Asian countries and also Nordic countries with larger current account surpluses relative to GDP than China, like Denmark, Norway and Sweden have dropped more than 10 percent.

Yet the morons that have most of the seats in the US Congress decides to target the country with the strongest currency, China, for having a too weak currency.

Forbes ("China And The Truth About The Senate’s Exchange Rate Oversight Act")—The real intent of the Act is to penalize China for its large bilateral trade surplus with the US, which is assumed to be the result of an undervalued yuan. The truth is that the trade surplus is due to many factors. A trade surplus merely reflects an excess of saving over investment in China. The purpose of trade is to increase wealth, not to increase jobs.

According to another Reuters story, the White House on Wednesday voiced concern that the Senate legislation could violate international trade rules.

The Currency Exchange Rate Oversight Reform Act of 2011 is co-sponsored by US Senators Charles Schumer, D-NY, and Lindsey Graham, R-SC. If approved by Congress, the legislation would force the Treasury Department to formally tag China as a currency manipulator and allow the Commerce Department to impose duties and tariffs on imports.

Full content of EJ Insight is available at www.ejinsight.com. Copyright Hong Kong Economic Journal Ltd. Republishing and editing are forbidden without authorization from Hong Kong Economic Journal. If there are any questions, please contact Chris Yeung (chrisyeung@hkej.com) for editorial matters and Margaret Lor (margaretlor@hkej.com) for sales and marketing matters.

hktdc.com – US Risks Trade War with China

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