The passage of a bill intended to make Beijing let its currency rise could lead to a trade war between the world’s top two economies, Chinese officials have warned. Both China’s central bank and ministries of commerce and foreign affairs are accusing the U.S. of “politicizing” currency issues. U.S. senators have agreed start a week of debate on the bill.
China apparently sees a greater risk from the current proposed bill than it has in the past. U.S. lawmakers have previously attempted to put forward similar legislation to speed up the pace of appreciation in the yuan, or renminbi. The central bank’s warning of a trade war coupled with a slowdown in China’s exchange rate reforms indicates that Beijing is taking the latest currency bill more seriously.
“It is very rare for three different ministries of the country to refute something so quickly and strongly, showing how deeply the Chinese government is concerned about the yuan bill,” Wang Zihong, a researcher at the China Academy of Social Sciences, a top government think tank says.
“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,” he said.
The Currency Exchange Rate Oversight Reform Act of 2011 would allow the U.S. government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies.
Keeping China’s currency undervalued has cost American jobs. A fairer exchange rate would help cut an annual trade gap Washington puts at more than $250 billion.
“By using the excuse of a so-called ‘currency imbalance’, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-U.S. trade and economic relations,” foreign ministry spokesman Ma Zhaoxu said in a statement posted on China’s official government Web site. “China expresses its adamant opposition to this.”
Ma urged U.S. legislators to “proceed from the broader picture of Sino-U.S. trade and economic cooperation” and “forsake protectionism”.
Beijing’s has insisted that it will continue to gradually reform its currency policy, “strengthening the flexibility of the renminbi exchange rate.”
The emergence of China as the world’s fastest-growing major economy has led to often strained relations with the United States. The most recent tension was over U.S. plans for a $5.3 billion upgrade of the F-16 A/B fighter fleet of Taiwan, which Beijing considers to be a breakaway province.
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