China Power

China Warns US of Trade War

China warns the US a bill passed by the Senate on alleged currency manipulation creates a lose-lose situation.

China has warned that the bill over its alleged currency manipulation, which has just passed the US Senate, risks triggering a trade war between the two nations. 

‘Should the proposed legislation be made into law, the result would be a trade war and that would be a lose-lose situation for both sides,’ said Vice Foreign Minister Cui Tiankai of a bill that supporters say would force China to revalue the Yuan and so help bring jobs back to the United States. ‘It would be detrimental to the development of economic ties and might have an adverse impact on bilateral relations.’
The Senate voted 63-35 to introduce new duties on imports from countries whose currencies are considered by the US to be undervalued. However, the bill has clearly been drafted very much with the Yuan in mind, which analysts believe could be as much as 30 percent undervalued, thus making Chinese goods cheaper for export.

‘The passing of the act, under the pretext of so-called “currency imbalance,” is a protectionist measure in nature, which severely violates the WTO rules,’ CNN quoted Chinese Foreign Ministry spokesperson Ma Zhaoxu as saying. ‘Not only will it fail to solve the economic and employment problems in the US, but it will severely obstruct China-US economic relations and trade.’
The Chinese position today also received what some might see as surprising support from the Republican Party leadership in the House of Representatives, with House Speaker John Boehner also warning today that the Currency Exchange Rate Oversight Reform Act creates a severe risk of a trade war.
‘Given the volatility in the world markets, given the uncertainty in the world economy, for the Congress of the United States to be taking this step at this moment in time poses a very severe risk of a trade war and unintended consequences that could come as a result,’ he said.
His comments came as Reuters reported China has launched an unprecedented lobbying effort that includes paying a Washington law firm $35,000 a week to lobby Congress and explain congressional politics to Chinese decision makers.
Still, according to China analyst Minxin Pei, the proposed sanctions in the bill won’t bite anyway. ‘(There are) increased dumping duties, which China is already paying, a ban on federal procurement in the US, but China doesn’t bid for those contracts anyway, and ineligibility to receive financing form the Overseas Private Investment Corporation. But China rarely benefits from this insurance,’ Pei told me.
Indeed, Pei believes that the legislation, rather than pressuring the Chinese to devalue their currency, could have the opposite effect by forcing China to suspend devaluation.
‘The US Congress is at its bottom level, not just in the United States, but also around the world, ‘he said. ‘In Beijing, Congressional chest-thumping simply makes all Chinese angry and even more resistant.’