As US Treasury Secretary Henry Paulson kicked off his Beijing
visit on Monday, observers warned that trade protectionism in
Washington posed a threat to China-US trade relations.
Three days before Paulson's China trip, the Senate Financial
Committee overwhelmingly passed a bill that allowed the US
government to use a wide array of measures to force other countries
to adopt more market-oriented currency policies. "This bill has
ominous implications for US-China trade and stands a very good
chance of becoming law," said Stephen S. Roach, chairman of the
Morgan Stanley Asia Limited, in an interview with Xinhua.
He said Paulson had an important job ahead in impressing on the
Chinese leadership the gravity of the political situation in
Washington. "Nothing happens by coincidence in the political realm.
Washington's protectionist tilt is unmistakable," he said.
The economist who has spoken three times this year in the US
Congress on US-China trade relations predicted that the final
legislation would be passed at the end of the year with the
bi-partisan support of at least two-thirds of the members in both
the House and the Senate, ruling out the possibility of a veto by
President George W. Bush.
As the US trade deficit with China shows little sign of
declining, US politicians increasingly claimed the yuan was
undervalued. "I am not a believer in the currency elasticity theory
of the bilateral trade fix. Without an improvement in US saving,
any such efforts on the currency front are doomed to failure," he
The net national saving rate of the United States averaged a
record low of one percent over the past three years.
With little saving, US economic growth had to rely on massive
capital inflow. Unfortunately, US dollar's position was being
undermined by the strengthening euro and RMB yuan, said Tan Yaling,
a research analyst with the Bank of China.
"Although the dominant position of the US dollar will not weaken
easily, the currency bill has unveiled a strong political hint that
the American politicians want other countries to dance to their
tune," she said.
The legislation allows US companies to seek anti-dumping duties
on goods from any country that maintains what the US government
calls a "fundamentally misaligned" exchange rate.
US consumers and multinationals would stand to lose rather than
benefit, because more than 60 percent of the total growth in
Chinese exports originated from "foreign-invested enterprises",
both Roach and Tan warned.
"By putting pressure on the RMB-dollar cross rate," Roach said,
"Washington is unwittingly squeezing the efficiency solution of US
multinationals and imposing the functional equivalent of a tax hike
on American consumers."
The central parity rate of yuan against US dollar has grown by
more than eight percent accumulatively from 8.28 yuan in July 2005
to the latest high of 7.5725 yuan. The country's trade surplus,
however, snowballed to 112.5 billion US dollars in the first half
of the year, up 83 percent from the same period last year.
The comparative advantages of China in production costs and
productivity remained strong and punitive duties would only
encourage China to expand its export market elsewhere, Tan
"The bill has predicated a hazardous tendency for the US
government to attempt to manipulate international organizations for
its own good. This is unprecedented behavior and unacceptable," she
The legislation urges the Bush administration to take action
through the International Monetary Fund and the World Trade
Organization against targeted countries that declined to reform
their currency policies while allowing the Federal Reserve to
intervene in global markets against the misaligned currency if the
country fails to make appropriate reforms one year after being
cited by the United States.
Roach said the worst-case scenario would be an escalation of
retaliatory trade actions between the US and China, which would
have devastating implications for US consumers and Chinese
"I am hopeful that the political leadership in both the US and
China might come to their senses before sliding down what could be
a very slippery slope,"
(Xinhua News Agency July 31, 2007)