United States Senators Charles Schumer and Lindsey Graham
dropped a contentious bill that threatened to slam high tariffs on
China's exports to the US unless China significantly raised the
value of its currency.
Despite surging protectionist sentiment in the US, the country's
politicians did not go o far as to pass a law that would strain
bilateral trade relations as well as violate the rules of the World
Trade Organization.
Earlier this month, Chinese Vice Premier Wu Yi and US Treasury
Secretary Henry Paulson jointly initiated the Sino-US Strategic
Economic Dialogue, a far more constructive move in tackling
disputes and differences over economic issues between the two sides
than the senators' confrontational proposal.
Browbeating could actually be counter-productive.
As important trading partners for each other, the US and China
are indeed in need of more consultations on economic matters.
Talks provide opportunities to understand each other's
situations and real intentions.
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Chinese policymakers have made it clear that they want the yuan's
exchange rates to be more flexible. For a trading giant and a
country aiming for a more mature market economy, allowing market
forces to work as the key determinant for its exchange rate is
certainly the ultimate goal.
The country has also been moving in that direction.
Since the foreign exchange reform in July 2005, the yuan's rate
to the US dollar has appreciated by more than 4 percent. Financial
departments have also been busy introducing and designing financial
instruments for a more sophisticated financial market, which is a
prerequisite for a liberalized currency.
But the country simply cannot afford to be radical in this
regard.
Toward the end of their trip to China in March, Schumer and
Graham said their talks with senior Chinese officials, including
Wu, resulted in their better understanding of China's true
intentions.
However, while announcing their decision to abandon the bill,
they said they would develop a new bill to press some countries for
currency reform. China is likely to remain a target of that
bill.
It is still too early to know what the new bill will be like,
but the sponsors should be aware that currency reforms simply
cannot be conducted with a drastic approach.
In addition, problems in the US, such as the uncompetitive
nature of its textile industry, cannot be solved by reforms in
other countries.
As some US businesspeople pointed out, the most likely result of
a dramatic renminbi appreciation, if it does happen, is the higher
price of many consumer goods and nothing else.
(China Daily September 30, 2006)
