With the U.S. presidential election drawing near, the RMB exchange rate issue has again become a prime opportunity for grandstanding by some U.S. politicians. The U.S. Senate cleared a procedural vote on the Currency Exchange Rate Oversight Reform Act of 2011 on Oct. 3.
If the bill is signed in to law, the U.S. government will attempt to force China to raise the RMB interest rates. If the Chinese side refuses, the United States will impose punitive tariffs on goods imported from China. As soon as the bill was announced, it encountered not only strong opposition from the Chinese side but also the doubts and objections from U.S. political, business and media sectors.
U.S. President Barack Obama said at a White House press conference on Oct. 6 that he is primarily concerned that the bill is perhaps inconsistent with U.S. international trade agreements and obligations and will not receive support from the World Trade Organization.
U.S. House Speaker John Boehner said on Oct. 4 that the move was"well beyond" and "pretty dangerous." House Majority Leader Eric Cantor said on Oct. 3 that the move to legislate the RMB exchange rate issue would not help address the issue. Republican Presidential Candidate and Texas Governor Rick Perry has also objected to the bill.
The New York Times said that the bill will do considerable harm to the U.S. economy and cause new ruptures in the already volatile bilateral relationship between China and United States. The Washington Post has published an article titled “US bill on China’s currency ‘does more harm than good.’”More than 50 business groups in the United States have jointly opposed the bill.
The international division of labor and economic structural adjustments has shaped the present structure of China-U.S. trade. The United States has a services trade surplus with China but a goods trade deficit with China mainly because of the diversion of trade from other East Asian countries and its restrictions on exports of hightech products to China.
Furthermore, it is ridiculous to link the RMB exchange rate with the high U.S. unemployment rate. Since China initiated its exchange rate reform in 2005, the RMB has appreciated about 30 percent against the U.S. dollar, while the U.S. unemployment rate has nevertheless risen from 7 percent to over 9 percent. It can be seen that accelerated appreciation of the RMB is not a solution to the unemployment problems of the United States.
Forcing China to revalue its currency is a mistake, and will hurt both countries. If China allows faster appreciation of its currency due to the U.S. pressure, the U.S. trade deficit with China will only be transferred to other countries, and it will have to import more from nations where production costs are higher. This will lead to higher consumer prices in the Untied States, increase the burden on U.S. consumers and exert a negative impact on the country’s economic recovery and the well-being of its people.
Although it has been three years since the global financial crisis caused by greedy U.S. bankers, the United States remains troubled by the weak economic recovery and high unemployment. Americans are becoming increasingly discontent with the government, and the Occupy Wall Street protest movement, which has lasted nearly a month, is still spreading rapidly.
This has showed the widening rich-poor gap in the United States and the growing public discontent about the country’s economic woes and chaotic political struggle. In such a context, certain U.S. politicians have again started bashing China for manipulating its currency, which is a typical"political show" aimed at shirking responsibility, diverting public attention from domestic problems and obtaining more votes. Using China as a scapegoat and politicizing economic issues will only worsen the political and economic problems of the United States instead of helping solve them.
At present, the world economy is in a complex and sensitive situation due to the deepening European and U.S. debt crises. At this critical moment, China and the United States should work together to promote the world economic recovery.
The United States’ unilateral punitive action over China’s exchange rate policy is in violation of the rules of the World Trade Organization, and will intensify bilateral trade disputes and damage both countries’ foreign trade as well as the world economy.
The U.S. government, Congress and far-sighted people from all circles should take China-U.S. trade relations and the country’s own interests into careful consideration, abandon protectionism, stop putting pressure on China using domestic legislation and take effective measures to prevent the escalation of the exchange rate issue and the spread of protectionism.
This way, China-U.S. relations may continue to develop in a healthy and positive way, and the two counties may work together to ensure the strong, balanced and sustainable growth of the world economy.
(Author: Professor at School of Economics and Management, Tongji University)