US Senate's misplaced focus in tackling economic woes

Updated: 2011-10-05 13:37


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WASHINGTON - The US Senate on Tuesday started deliberating on a bill on so-called China's "currency manipulation," which threatens to punish China with retaliatory tariffs on its exports despite the risks of derailing bilateral political and trade relations.

The bill, sponsored by Senators Charles Schumer, Sherrod Brown and other Democrats and Republicans, asks the US Treasury Department to designate China as a "currency manipulator" for subsidizing its exports with undervalued currency, so to pave way for imposing countervailing duties to reduce trade imbalance between the two countries and create more jobs at home.

While facing more urgent tasks to pass President Barack Obama's grand jobs bill to help create more jobs and deal with the deficit-reduction issue amid a slow economic growth, some US senators have apparently misplaced their focus on China's currency in their efforts to fight unemployment.

As some economists have already pointed out, the US lawmakers' targeting of China's currency is counterproductive to address the trade imbalance between the two countries. The reasoning that the rise of yuan against dollar will help reduce US trade deficit with China is simply wrong.

While the appreciation of yuan could initially increase US exports to China and reduce China's exports to the United States, these effects would be limited and transitory as long as the imbalance between savings and investment in the two countries remain unchanged, they said.

There has been no evidence to prove the link, claimed by the US lawmakers, between China's exchange rate and the US unemployment.

On the contrary, while the yuan has appreciated against the dollar by 7 percent since June 2010 when China started implementing the policy of allowing a more flexible yuan, the US unemployment has further worsened, rather than eased. The US unemployment has climbed from about 7 percent to 9.1 percent though the yuan has appreciated for over 25 percent since 2005.

According to a report recently released by the US-China Business Council, US exports to China in fact outpaced its exports to the rest of the world during 2001-2010 period. Yet, the unemployment problem in the United States had become even worse within that period.

Experts generally attributed this high unemployment to increased outsourcing of the US manufacturing industry, pressured by rising costs back home, amid the growing trend of globalization in the past decades. Other factors include the financial crisis that started in 2008 and the technical breakthroughs that have taken a toll on jobs with increased use of computers.

Viewing China-US trade imbalance all sidedly, the United States has to share a great part of the blame. By accusing China of being solely responsible for the imbalance, US politicians deliberately ignored the fact that Washington's refusal to ease restrictions on high-tech exports to China, mostly for political reasons, is one of the root causes.

As China has often argued, increasing US high-tech exports to China is one of the effective and feasible ways to generate jobs and reduce trade deficit between the two countries, as China needs technologies to tackle the mounting challenges of fighting environmental pollution and sustaining its economic boom through shifting the mode of economic growth.

The attempts by some US lawmakers to politicize China's currency issue are nothing new at times of domestic troubles or election years. They would resort to China bashing for political gains and try to find a political scapegoat so as to shed their responsibilities for failure in dealing properly with domestic problems, and divert people's attention from the sagging economies. .

The Senate bill even draws concerns from the top Republican in the Congress. US House Speaker John Boehner warned on Tuesday that "it's pretty dangerous to be moving legislation through the United States Congress forcing someone to deal with the value of their currency," signalling that the bill might not pass the Republican-controlled House.

Both China and the United States, which are each other's No. 2 trade partners, have reaped tremendous benefits from booming bilateral trade over the past decades. As their economies are interwoven more tightly than ever, it is in the fundamental interests of the two countries, as well as the rest of the world, to reject all attempts to destabilize the China-US trade and economic relations.