China Accuses U.S. of Politicizing Yuan as Trade Surplus Sinks
China warned the U.S. against imposing sanctions over the value of the yuan, arguing that the exchange rate issue has been politicized and that a rise in protectionism threatens the global economic recovery.
(Bloomberg) -- China warned the U.S. against imposing sanctions over the value of the yuan, arguing that the exchange rate issue has been politicized and that a rise in protectionism threatens the global economic recovery.
Pressure on China to strengthen the yuan does ‚Äúno good to anyone,‚ÄĚ China‚Äôs Commerce Minister Chen Deming said at the China Development Forum in Beijing yesterday. China‚Äôs trade balance likely slipped into the red in March, although the yuan was stable, showing that exchange rate changes have a ‚Äúlimited‚ÄĚ impact on trade, Chen said.
Tensions over China‚Äôs currency are mounting, with President Barack Obama facing increased calls from U.S. lawmakers to step up pressure on China for keeping its exchange rate artificially low. Chen yesterday warned that sanctions against China that amounted to protectionism would hinder growth and raise the risk of a ‚Äúdouble dip recession.‚ÄĚ
‚ÄúNo matter how tough both sides sound now, they‚Äôll eventually come back to the negotiation table for a mutually beneficial solution‚ÄĚ as any U.S. sanctions will be detrimental to both, Li Wei, an economist with Standard Chartered in Shanghai, said in a phone interview.
In March, China will probably record its first trade deficit since April 2004. The surplus had already narrowed to a one-year low of $7.6 billion in February after a 34 percent decline last year. The U.S. trade deficit was $37.3 billion in January, shrinking from a record $67.8 billion in August 2006 as American consumers slowed spending amidst the recession.
The decline in China‚Äôs trade surplus failed to appease U.S. lawmakers because 73 percent of the gap was with the U.S., Chen said. That was mainly because of curbs on exports to China, including technologies and parts that China wanted, he said.
Chen said he contacted the U.S. Commerce Department on buying helicopter engines to aid rescue efforts after the Sichuan earthquake in 2008, but was told to wait for permission from the U.S. defense department. He never heard back, and China bought Russian engines instead.
He also said he scrapped plans for a few ‚Äúlarge-scale‚ÄĚ purchasing delegations to the U.S. this year because what companies wanted to buy wasn‚Äôt what the U.S. was willing to sell. Chen didn‚Äôt give further details on what China wanted to buy.
China‚Äôs leaders have repeatedly said that their yuan policy isn‚Äôt the cause of the U.S. trade gap.
The government has kept the yuan at 6.83 per dollar since mid-2008 to shield exporters from the global recession and a contraction in world trade. It allowed the currency to appreciate 21 percent in the three years before that.
The yuan ‚Äúactually isn‚Äôt particularly undervalued anymore,‚ÄĚ Goldman Sachs Group Inc. Chief Economist Jim O‚ÄôNeill said last week. ‚ÄúIt‚Äôs unfortunate that we have so much political angst around this. The key thing is that post-crisis, China is importing a lot.‚ÄĚ
Increased Chinese spending is a better way of reducing trade imbalances, Morgan Stanley Asia Chairman Stephen Roach said March 19 in a Bloomberg TV interview. ‚ÄúWe‚Äôre lashing out at China rather than tending to our own business,‚ÄĚ which is raising U.S. savings, Roach said.
China has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.
Global economic growth would be about 1.5 percentage points higher if China stopped restraining the yuan and running trade surpluses, Paul Krugman, Princeton University professor and Nobel laureate in economics, said at an Economic Policy Institute event in Washington on March 12. He said the U.S. may need to get more aggressive in its talks with China, perhaps by treating the exchange-rate as a countervailing duty or other export subsidy.
‚ÄėDepressed by China‚Äô
‚ÄúWe have a world economy which is depressed by China artificially keeping its currency undervalued,‚ÄĚ Krugman said in a March 19 interview.
Five senators, including Charles Schumer of New York and Lindsey Graham of South Carolina, last week introduced legislation to make it easier for the U.S. to declare currency misalignments and take corrective action. The Treasury Department is to decide next month whether to label China as a currency manipulator.
China ‚Äúwon‚Äôt turn a blind eye‚ÄĚ if the Treasury Department‚Äôs April 15 report labels the Asian nation as a currency manipulator and sanctions follow, Chen said in comments broadcast on China Central Television. The government will ‚Äúdeal with‚ÄĚ any escalation of the dispute, he said.
The government should be ‚Äúvery careful‚ÄĚ in exiting anti- crisis measures, including the exchange rate policy, People‚Äôs Bank of China Governor Zhou Xiaochuan said March 6.
Phasing out the stimulus package will be ‚Äúgradual and mild‚ÄĚ to ensure a ‚Äúsafe landing,‚ÄĚ Vice Finance Minister Wang Jun said yesterday at the same Beijing forum, according to a transcript of his comments on sina.com.cn.
--Zhang Dingmin. Editors: Ben Richardson, Joshua Fellman.