BEIJING: The Currency Exchange Rate Oversight Reform Act of 2011, a bill passed by the US Senate on Tuesday that will push China to revalue its currency, may spawn a trade war between the two nations and endanger global economic recovery; Xinhua News reported what economic analysts said.
The controversial bill, which calls for punitive tariffs on countries with allegedly misaligned currencies, noticeably the Chinese Renminbi or yuan, was passed in a vote of 63-35 at the Senate.
The attempt by the US Senate to approve the bill will create a lose-lose situation for both sides and further worsen prospects for global economic recovery, analysts said.
“If the US insists on blaming China for its trade imbalance and domestic problems, it could trigger a worldwide recession and do even greater damage to global interests,” said Liu Weiping, a researcher with the Massachusetts Institute of Technology.
YUAN NOT CAUSE OF U.S. AILMENTS
The bill comes ahead of the US 2012 elections and at a time when the United States is suffering sluggish growth and persistent high unemployment, which have driven thousands of protesters to the streets of New York and dozens of other cities.
Many people in the United States believe that the yuan has been undervalued, offering Chinese producers a competitive edge in global markets. Backers of the bill said the bill would help reduce trade deficits and improve employment.
“Chronic financial ailments and climbing unemployment in the US are not China’s fault,” Liu said.
China’s labour, energy resources and land costs are relatively low, and many products are cheaper mainly because taxes on resources are ineffectively implemented, none of which have anything to do with the yuan’s exchange rate, Liu said.
Statistics showed that the US unemployment rate has risen from seven percent to over nine percent since 2005, while the yuan has appreciated against the dollar by over 30 percent during the same period.
Coping with its trade surplus, China has adopted a raft of measures to boost imports and reform its currency policies to create more flexibility. In the first half of 2011, the ratio of China’s trade surplus to its gross domestic product dropped to 1.4 percent, according to the Ministry of Commerce.
“Whether the yuan should rise more quickly should not only be measured by China’s external surplus, but also by the nation’s internal development,” Liu said.
There are a variety of reasons for the global trade imbalance. Differences in investment and trade structures, savings and consumer behavior, roles in the global industrial chain and the international monetary system may be more important reasons for the trade imbalance between China and the United States, the People’s Bank of China (PBOC), the central bank, said in a statement.
“The US should examine its own economic structure and address the fact that it spends a lot while restricting the spending of other countries by limiting oil and technology exports,” Liu said.
TRADE WAR RISK
As countries around the world seek in collaboration to prevent a double-dip recession, the United States risks triggering a trade war between the world’s two leading economies by passing the bill, according to Liu.
“Under the excuse of the so-called ‘currency imbalance,’ the bill will raise protectionist sentiments and trigger a trade war, as it imposes high tariffs on foreign producers and subsidises their US peers,” Liu said.
Statistics indicate that China and the United States are each other’s second-largest trading partners. Trade between the two nations accounts for a considerable share of total global trade.
“If the Obama administration continues to act self-righteously, chances for the exacerbation of trade disputes will rise,” Liu said.
A large one-off appreciation of the yuan would do severe economic harm to China’s economy, as the rapid development of which has created a large market for the world and served as a global stabilizer during the 2008 financial meltdown.
If the United States imposes punitive tariffs on imports from China, both Chinese manufacturers and their US partners will be hard-hit, as well as US consumers.
The bill will also do little to help the United States to reclaim jobs. On the contrary, a stronger yuan may push US firms to shift manufacturing to other low-cost producers such as Vietnam and India, according to Liu.
SOLUTION THROUGH DIALOGUE AND UNDERSTANDING
Jing Xuecheng, former deputy director of the PBOC’s research bureau, said the motive for issuing the bill is political in nature.
“The bill is completely blind to the real problems that the US faces and does not take global economic recovery into consideration,” Jing said.
The bill, which still needs to get approval from the House of Representatives and be signed by the president, was also cold-shouldered inside the country. President Barack Obama last Thursday expressed “concerns” about the bill, saying it could violate international rules.
Republican House Speaker John Boehner has warned that it is “pretty dangerous to be moving legislation through the US Congress forcing someone to deal with the value of their currency.”
US companies doing business in China also opposed the Senate’s passing of the bill.
In a letter sent in late September to Senate leaders, 51 US business and industry organisations, including American Association of Exporters and Importers, American Chamber of Commerce in China, and Agriculture Transportation, warned that “unilateral legislation on this issue would be counterproductive not only to the goals related to China’s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China.”
Viewed from a long-term and strategic perspective, China and the United States share common basic interests and a wide range of areas for cooperation, Jing said.
“Neither the US nor China can afford to choose confrontation. The two nations’ cooperation is beneficial for the world. But how to strengthen exchanges and understanding and build bilateral ties has been an unavoidable issue,” Jing said.
A poor understanding of China and its own problems is part of the reason for the US Senate’s eagerness to pass the bill, Jing said.
“The key to solving conflicts between the two countries is through dialogue and understanding,” Jing said.
Source: www.theborneopost.com
The controversial bill, which calls for punitive tariffs on countries with allegedly misaligned currencies, noticeably the Chinese Renminbi or yuan, was passed in a vote of 63-35 at the Senate.
The attempt by the US Senate to approve the bill will create a lose-lose situation for both sides and further worsen prospects for global economic recovery, analysts said.
“If the US insists on blaming China for its trade imbalance and domestic problems, it could trigger a worldwide recession and do even greater damage to global interests,” said Liu Weiping, a researcher with the Massachusetts Institute of Technology.
YUAN NOT CAUSE OF U.S. AILMENTS
The bill comes ahead of the US 2012 elections and at a time when the United States is suffering sluggish growth and persistent high unemployment, which have driven thousands of protesters to the streets of New York and dozens of other cities.
Many people in the United States believe that the yuan has been undervalued, offering Chinese producers a competitive edge in global markets. Backers of the bill said the bill would help reduce trade deficits and improve employment.
“Chronic financial ailments and climbing unemployment in the US are not China’s fault,” Liu said.
China’s labour, energy resources and land costs are relatively low, and many products are cheaper mainly because taxes on resources are ineffectively implemented, none of which have anything to do with the yuan’s exchange rate, Liu said.
Statistics showed that the US unemployment rate has risen from seven percent to over nine percent since 2005, while the yuan has appreciated against the dollar by over 30 percent during the same period.
Coping with its trade surplus, China has adopted a raft of measures to boost imports and reform its currency policies to create more flexibility. In the first half of 2011, the ratio of China’s trade surplus to its gross domestic product dropped to 1.4 percent, according to the Ministry of Commerce.
“Whether the yuan should rise more quickly should not only be measured by China’s external surplus, but also by the nation’s internal development,” Liu said.
There are a variety of reasons for the global trade imbalance. Differences in investment and trade structures, savings and consumer behavior, roles in the global industrial chain and the international monetary system may be more important reasons for the trade imbalance between China and the United States, the People’s Bank of China (PBOC), the central bank, said in a statement.
“The US should examine its own economic structure and address the fact that it spends a lot while restricting the spending of other countries by limiting oil and technology exports,” Liu said.
TRADE WAR RISK
As countries around the world seek in collaboration to prevent a double-dip recession, the United States risks triggering a trade war between the world’s two leading economies by passing the bill, according to Liu.
“Under the excuse of the so-called ‘currency imbalance,’ the bill will raise protectionist sentiments and trigger a trade war, as it imposes high tariffs on foreign producers and subsidises their US peers,” Liu said.
Statistics indicate that China and the United States are each other’s second-largest trading partners. Trade between the two nations accounts for a considerable share of total global trade.
“If the Obama administration continues to act self-righteously, chances for the exacerbation of trade disputes will rise,” Liu said.
A large one-off appreciation of the yuan would do severe economic harm to China’s economy, as the rapid development of which has created a large market for the world and served as a global stabilizer during the 2008 financial meltdown.
If the United States imposes punitive tariffs on imports from China, both Chinese manufacturers and their US partners will be hard-hit, as well as US consumers.
The bill will also do little to help the United States to reclaim jobs. On the contrary, a stronger yuan may push US firms to shift manufacturing to other low-cost producers such as Vietnam and India, according to Liu.
SOLUTION THROUGH DIALOGUE AND UNDERSTANDING
Jing Xuecheng, former deputy director of the PBOC’s research bureau, said the motive for issuing the bill is political in nature.
“The bill is completely blind to the real problems that the US faces and does not take global economic recovery into consideration,” Jing said.
The bill, which still needs to get approval from the House of Representatives and be signed by the president, was also cold-shouldered inside the country. President Barack Obama last Thursday expressed “concerns” about the bill, saying it could violate international rules.
Republican House Speaker John Boehner has warned that it is “pretty dangerous to be moving legislation through the US Congress forcing someone to deal with the value of their currency.”
US companies doing business in China also opposed the Senate’s passing of the bill.
In a letter sent in late September to Senate leaders, 51 US business and industry organisations, including American Association of Exporters and Importers, American Chamber of Commerce in China, and Agriculture Transportation, warned that “unilateral legislation on this issue would be counterproductive not only to the goals related to China’s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China.”
Viewed from a long-term and strategic perspective, China and the United States share common basic interests and a wide range of areas for cooperation, Jing said.
“Neither the US nor China can afford to choose confrontation. The two nations’ cooperation is beneficial for the world. But how to strengthen exchanges and understanding and build bilateral ties has been an unavoidable issue,” Jing said.
A poor understanding of China and its own problems is part of the reason for the US Senate’s eagerness to pass the bill, Jing said.
“The key to solving conflicts between the two countries is through dialogue and understanding,” Jing said.
Source: www.theborneopost.com
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