Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S.-China Trade Tensions Evident in Futile House Currency Bill

Politics / US Politics Sep 29, 2010 - 06:19 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJason Simpkins writes: The U.S. House of Representatives today (Wednesday) will vote on legislation that would let the U.S. government take punitive actions against countries that undervalue their currencies.

The bill isn't likely to have any tangible impact on U.S. policy, but it's yet another manifestation of the growing friction between the world's two greatest economic powers.

The Currency Reform for Fair Trade Act (HR 2378) is the apparent result of increasingly harsh rhetoric towards China's currency policy, which U.S. lawmakers say keeps the yuan undervalued. It is a relatively toothless measure that will likely have no effect on U.S. policy, but instead serve as a rallying cry for Congressional lawmakers looking to win votes ahead of November's midterm elections, and perhaps, U.S. officials heading to a Group of 20 (G20) summit the very same month.

Language that would have required the Obama administration to impose duties on imports from currency-manipulating countries was taken out of the bill on Friday, before it left the House Ways and Means Committee for a vote. That left only the vague threat of repercussion for countries with undervalued currencies, which if enacted, would violate World Trade Organization (WTO) laws.

It's unlikely that even the watered down bill would pass the Senate, which is less cohesive in its criticism of China's trade policies, or a potential veto by President Obama.

But if it did manage to pass Congress, the bill could still have disastrous implications.

The bill "would create a very damaging thing to the world economy and the stability of Asia," Nobel-Prize winning economist Robert Mundell told Bloomberg Television. "This would have a wounding effect on the stability of international relations. There's never been any precedent in economic history where a country through any legal system was forced to appreciate its currency relative to another country."

Indeed, China has repeatedly asserted that decisions on the yuan will be based on its own economic objectives, not foreign pressure.

"We'll make a decision based on our own economic development levels and the world economic situation," said Chen Jian, China's vice commerce minister. "If it takes the yuan to appreciate for our economy to develop, we will do it even though it would have a negative impact. But it is redundant for the U.S. Congress to pass the proposal."

Additionally, there's little to suggest that an appreciation in the yuan's value would do anything to help stabilize the U.S. economy.

"It's not going to have much of a dent in the U.S. deficit," said Mundell, who won the Nobel Prize in 1999 for research that helped lay the foundation for Europe's single currency. "America has had a huge deficit since the 1980s. None of that is going to change if China changes its exchange rate."

The U.S. trade deficit declined 14% to $42.8 billion in July from $49.8 billion in June, the Commerce Department said earlier this month. The deficit with China fell to $25.9 billion from $26.2 billion in June. The U.S. trade gap with China was $119.5 billion in the first six months of the year.

There's little doubt that the undervalued yuan has contributed to the deficit by making Chinese goods cheaper. But high unemployment, weak domestic demand, and a soaring national debt won't be solved through a political melee with China. In fact, there's a far greater chance that a showdown with China would hurt ailing U.S. businesses more than it would help them.

"This step would make it harder for us to export to China, not easier," Timothy Stratford, a partner in Beijing at Covington & Burling LLP and a former U.S. trade official, told Bloomberg.

Robert Roche, the chairman of the American Chamber of Commerce in Shanghai, says U.S. lawmakers and businesses would be better served to ask why Germany, Japan and other nations are exporting more goods to China, while the United States is exporting less to the Asian juggernaut.

The United States has seen its share of China's imports drop from 10.7% in 2001 to 7.18% in 2008. It exported just $69.5 billion worth of goods to China last year. Meanwhile, Japanese exports to China totaled $109.7 billion, and Germany's exports to the Red Dragon increased by 7% to $49.4 billion. Total European Union exports to China reached $111 billion in 2009.

So it's no wonder the United States is beginning to look increasingly isolated in its push for Chinese currency reform.

Speaking to Congress earlier this month U.S. Treasury Secretary Timothy Geithner said he would use the upcoming G20 summit in Seoul, South Korea as a forum for debate over the yuan, but representatives from other countries have been reluctant to follow his lead.

"The U.S. is more determined than the rest of the G20 to get something out of China on the yuan," a Eurozone monetary official speaking on condition of anonymity told Reuters. "It's largely a bilateral matter with the rest looking on as spectators, either because they don't count enough or because they aren't very interested."

Meanwhile, China has demonstrated its growing global influence by finding support among other emerging markets, like Russia and Brazil.

"I believe that this idea of putting pressure on a country is not the right way for finding solutions," Brazilian Foreign Minister Celso Amorim told Reuters last week.

Brazil, he said, enjoyed good coordination with China and "we can't forget that China is currently our main customer."

Said Indonesian Foreign Minister Marty Natalegawa: "The rise of China, the increasing prominence of China, is a fact of life. It is something that we must all embrace, and celebrate as a matter of fact, because Indonesia is benefiting as well with China's increasing economic prominence."

Indeed, China's rise as an economic counterweight to the United States only really seems to be a problem for the United States. Here, the belief that China's growing economic and political clout is something to be embraced has found much less traction.

In an op-ed piece for the Washington Post, financial author and columnist Robert J. Samuelson pointed out that China has never genuinely accepted the basic rules governing the world economy, but rather followed the rules that suit its interests and rejects, modifies, or ignores the ones that don't.

Of course, confronting China's self-serving economic policies with trade protectionism at a time of such economic instability could result in economic catastrophe. But Samuelson argues that it's a tactic we must nonetheless pursue.

"The collision is between two concepts of the world order," he says. "As the old order's main architect and guardian, the United States faces a dreadful choice: resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous."

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in