Beijing warns of 'trade war' over US currency bill
Beijing has warned Washington that it risks triggering a trade war with legislation being considered by the US Senate that would punish China for its currency policies.
US lawmakers have accused Beijing of manipulating the value of the yuan to keep it artificially low in order to boost exports. In a rare move, the central bank, the People's Bank of China (PBOC), and the ministries of commerce and foreign affairs took simultaneous, co-ordinated action yesterday to express Beijing's strong opposition to the bill, aimed at forcing Beijing to let its currency float freely, and accused Washington of politicising global currency issues.
The US Senate voted on Monday to allow a debate on the bill, which would force the US government to treat currency manipulation as a form of state subsidy.
The 79-19 vote kicked off a week-long debate on the bill. Before becoming law, the bill, sponsored by Democrats Senator Sherrod Brown and Senator Chuck Schumer and also supported by leading Republicans, will have to pass votes in both the Senate and the House, after which US President Barack Obama would have the power to veto it.
Passage of the legislation 'may lead to a trade war that we don't want to see', the PBOC said, while House Speaker John Boehner said the Senate legislation was dangerous.
'I think it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency. This is well beyond I think what the Congress ought to be doing.'
But House Democrats said support for the bill was rising and it now had 225 co-sponsors, including 61 Republicans. The White House said it was still reviewing the bill and was discussing it with lawmakers.
'We share the concerns of members [of Congress] about the valuation of the [Chinese] currency and the need to appreciate it,' White House spokesman Jay Carney said.
He said the administration wanted to be sure any measure met US 'international obligations'.
Analysts warned that a trade war could have disastrous consequences. China, the fastest-growing major economy, has been suggested as a potential saviour of the teetering global economy.
'A trade war would complete the parallel between the US economy of today with that of the early 1930s,' said Tim Condon, chief Asia economist with ING.
Shen Jianguang, chief China economist with Mizuho Securities, said: 'Right now, both the US and China understand that global co-operation to avoid a second dip is of paramount importance, and a trade war is the last thing everyone wants.'
The PBOC said the US bill - which would impose tariffs on some Chinese goods - would not solve US 'problems of insufficient savings, a trade deficit and an elevated jobless rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime'.
The yuan has risen 7 per cent against the dollar since June last year after its de facto peg to the US currency following the 2008 global financial crisis. The PBOC said inflation had pushed the real yuan exchange rate further 'towards equilibrium'.
Shen said China's imports were rising faster than exports, and the trade surplus was declining.
'The market pressure for a faster appreciation is non-existent,' he added.
Foreign Ministry spokesman Ma Zhaoxu said the US move 'seriously violated rules of the World Trade Organisation'.
Ministry of Commerce spokesman Shen Danyang said the United States was trying to pass on the blame for its own failings.
6.38
The yuan to US dollar exchange rate yesterday
- In 2006, one US dollar was worth about eight yuan
Oanda.com
