US bill on Yuan could threaten a trade war
October 11, 2011

Kick starting tensions between the worlds largest economies, China warned the United States on Monday of a trade war if Congress passes a bill pressuring Beijing to appreciate the yuan.  US lawmakers are set to vote on the bill today.

China’s central bank and the ministries of commerce and foreign affairs last week jointly warned that the proposed currency law could lead to a trade war between the two countries. The hostility caused by the bill also spurred the WTO to take action against China and India for flouting rules by failing to notify the world trade body on government subsidy programs.

China which has continuously opposed Americas efforts to appreciate the Yuan, reiterated Beijing’s opposition to the bill and said that it will hamper global economic recovery and further hurt US jobs growth.   “Should the proposed legislation be made into law, the result would be a trade war between China and the US and that would be a lose-lose situation for both sides,” Vice-Foreign Minister Cui Tiankai said at a news briefing.

Once the bill is passed in the Senate, it will be sent to the House of Representatives for approval. Consequently, the bill would require the US Department of Commerce to estimate what they claim to be currency under-valuations when calculating duties imposed on imports deemed to be State-subsidized. “(The currency bill) in no way represents the reality of the economic and trade relationship” between the two leading economies, said Cui, who currently heads the China delegation for G20 negotiations.

Some US politicians claim that China holds down the value of its currency to give its exporters an edge. But Beijing says it is committed to gradual reform of the yuan, which has risen 30 percent against the greenback since 2005. The yuan hit a fresh high against the U.S. dollar Tuesday for the second consecutive day. The dollar slumped to CNY6.3375 in early over-the-counter trading, its lowest level since the yuan’s landmark revaluation in 2005 and versus CNY6.3486 late Monday. It represents the highest closing level since the country unified the official and market exchange rates at the end of 1993, according to the China Foreign Exchange Trade System. It is also the biggest daily increase since China loosened the yuan’s peg to the dollar on July 21, 2005.

American legislators too are worried, many skeptical that the House of Representatives will not let the bill pass into legislation. America for one cannot afford a trade war with China.

Wang Haifeng, a senior researcher with the Foreign Economic Research Institute, a think tank for the National Development and Reform Commission, told China Daily that the currency bill may damage the US more than China, because trade friction will reduce imports from China. “The passage of this bill will surely spark a trade war and US consumers would be the final victims,” Wang said. Whether this currency issue will have long-term effects on the Sino-US trade relationship depends on how quick the US economy recovers, he added.

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