China Threatens Trade War With U.S

Oct 4, 2011 by

On Tuesday China unleashed a fury of opposition to a bill being voted on in the Senate that would force China’s currency to rise so that it cannot have a purposely unfair advantage in the marketplace. China currently strongly undervalues its Yuan or renminbi against the U.S dollar which American politicians say is the reason so many U.S jobs are leaving for China. In response to the bill, which has more support than a similar one that failed earlier, three Chinese ministers accused the U.S of “politicizing” currency issues and violating WTO rules while putting the world economy at risk.

“The strong responses made by the Chinese government may also suggest that the possibility would be quite high this time that the United States will pass the final bill in the end and that Beijing is worried about the possible negative impact on China’s exports resulting from the legislation,” said Wang Zihong, a researcher at the China Academy of Social Sciences, a top government think tank.

The Currency Exchange Rate Oversight Reform Act of 2011 would allow the United States government to place duties on nations that undervalue their currencies to benefit their exports. American lawmakers say a fairer exchange rate would help the U.S cut an annual trade gap estimated at $250 billion. While China’s currency has appreciated quite a bit, nearly 30% since 2005, experts still say China gives itself a very unfair advantage.

This is the most recent spat with China after their blowup over the Obama administrations decision to upgrade Taiwan’s F-16 fleet but unlike the weapons deal, this bills passage is uncertain. Even if it were to pass both the Senate and the Republican controlled House it would put President Obama in a very awkward position. While he succeeded in avoiding major tensions with China by not selling Taiwan new fighter jets this bill presents a challenge not only to Chinese/U.S relations but also to his reelection campaign. If the bill passes through the House and makes it to his desk he must choose between vetoing it and irritating all of Congress or passing it and staining relations with China. The question is which one is more problematic? With Obama’s current poll numbers I don’t think he’ll be siding with China.

Source: CNBC

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