A new currency bill aimed at China the US Senate Finance
Committee passed last week will do little to help cut the Untied
States' ballooning trade deficit. Instead, the legislation that
smacks of strong protectionism, risks undermining ongoing bilateral
efforts to reduce trade imbalances between the two countries.
Just a few days before China and the United States are to hold a
new round of Strategic Economic Dialogue (SED), an important
approach for the two countries to address key economic and trade
problems they face, the US Senate Finance Committee voted 20-1 to
pass a bill that would give the US government new tools to pressure
China to float the yuan in open markets.
The legislation would allow US companies to seek anti-dumping
duties on goods from any country that maintains a "fundamentally
misaligned" exchange rate after being formally cited by the United
States. At present, it is ostensibly targeted at China.
The supporters of the bill seem to believe that a faster
appreciation in the yuan, the Chinese currency, is a panacea to the
broadening US trade deficit with China or US losses in
manufacturing jobs.
However, their assumption not only flies in the face of huge and
critical efforts China has made to reduce its external imbalances,
but also misses the underlying cause of the soaring US trade
deficit.
The Chinese government has made it very clear with words and
actions that the country is resolved to introduce greater
flexibility into its foreign exchange regime at its own pace and
reduce its external imbalances.
On one hand, since 2005, China has allowed the yuan to
appreciate gradually and steadily against the US dollar. The yuan
has risen by about 9 percent against the greenback since then. On
the other, the country has tried hard to rein in export growth
while boosting domestic consumption.
The Chinese government has adopted a slew of trade and tax
policies, such as the reduction and removal of value-added tax
rebates and the imposition of export taxes, to discourage exports.
Meanwhile, China's domestic consumption is growing at its fastest
pace in more than a decade thanks to increased government spending
on public welfare and rising income levels for rural and urban
residents.
All the measures the Chinese government has taken definitely
point to balanced trade growth in future. For the United States,
correspondingly, efforts are needed to persuade its people to
consume less and save more if its current account deficit is to be
narrowed.
Unfortunately, the new US bill tends to mislead its people into
believing that protectionism can be an answer to its economic
woes.
(China Daily July 30, 2007)
